2. Kathy deposits $10,000 cash into her checking account at First Federal Bank. The required reserve ratio is 20 percent. (a) Calculate the maximum possible change in First Federal's loans as a result of Kathy's deposit. (b) After all adjustments in the banking system have occurred, calculate the maximum possible change in each of the following as a result of Kathy's deposit. (i) Demand deposits in the banking system (ii) The money supply (c) Draw a correctly labeled graph of the money market and show the effect of Kathy's deposit on the nominal interest rate. (d) Identify ONE reason that the change in the money supply could differ from the value calculated in part (b)(ii).

2. Kathy deposits $10,000 cash into her checking account at First Federal Bank. The required reserve ratio is 20 percent. (a) Calculate the maximum possible change in First Federal's loans as a result of Kathy's deposit. (b) After all adjustments in the banking system have occurred, calculate the maximum possible change in each of the following as a result of Kathy's deposit. (i) Demand deposits in the banking system (ii) The money supply (c) Draw a correctly labeled graph of the money market and show the effect of Kathy's deposit on the nominal interest rate. (d) Identify ONE reason that the change in the money supply could differ from the value calculated in part (b)(ii).

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter27: Money And Banking

Section: Chapter Questions

Problem 31P: Humongous Bank is the only bank in the economy. The people in this economy have 20 million in money,...

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