Need help with this. I gave possible solutions(pick one) Thank you! # The Money Creation ProcessSuppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 10%. The Federal Reserve buys a government bond worth $500,000 from Raphael, a customer of First Main Street Bank. He deposits the money into his checking account at First Main Street Bank.**Balance Sheet Changes:**Complete the following table to reflect any changes in First Main Street Bank's balance sheet (before the bank makes any new loans).| **Assets** | **Liabilities** ||-------------------------------------------------------|-----------------------------------------------------|| Building and Furniture/Checkable | Building and Furniture/Checkable || Deposit/Loans/Net Worth/Reserves | Deposit/Loans/Net Worth/Reserves || $50,000/$450,000/ | $50,000/$450,000/ || $500,000/$1,100,000 | $500,000/$1,100,000 |**Effects of New Deposit:**Complete the following table to show the effects of the new deposit on excess and required reserves, assuming a required reserve ratio of 10%.*Hint:* If the change is negative, be sure to enter the value as a negative number.| Amount Deposited (Dollars) | Change in Excess Reserves (Dollars) | Change in Required Reserves (Dollars) ||----------------------------|--------------------------------------|---------------------------------------|| 500,000 | | | **Scenario Explanation:**Imagine that First Main Street Bank loans out all of its new excess reserves to a person named Megan. Megan writes a check for the full amount to Larry. Larry deposits these funds into his checking account at Second Republic Bank. Second Republic Bank then lends its new excess reserves to Alex, who writes a check to Susan. Susan deposits the money in her account at Third Fidelity Bank. Third Fidelity Bank eventually lends out all of its new excess reserves to Becky.**Task:**You are asked to fill in a table to demonstrate the effect of this chain of events at each bank. The values should be rounded to the nearest dollar.**Table:**| | Increase in Checkable Deposits (Dollars) | Increase in Required Reserves (Dollars) | Increase in Loans (Dollars) ||----------------------------------|-----------------------------------------|-----------------------------------------|-----------------------------|| **First Main Street Bank** | 500,000 | | || **Second Republic Bank** | | | || **Third Fidelity Bank** | | | |**Assumption:**This process continues with each successive loan deposited into a checking account, assuming no banks keep any excess reserves. With this, the initial $500,000 results in an increase of $500,000/$4,500,000/$5,000,000 in checkable deposits. This educational example illustrates how the money multiplier effect works in the banking system, where the same initial amount of excess reserves can lead to a much larger increase in the total money supply.

Assets - An asset is an increased value that a corporation or country owns and controls expecting a…

3. The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 10%. The Federal Reserve buys a government bond worth $500,000 from Raphael, a customer of First Main Street Bank. He deposits the money into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's balance sheet (before the bank makes any new loans). Assets Building and Furniture/Checkable Deposit/Loans/Net Worth/Reserves $50,000/$450,000/ $500,000/$1,100,000 Liabilities Building and Furniture/Checkable Deposit/Loans/Net Worth/Reserves $50,000/$450,000/ $500,000/$1,100,000 Complete the following table to show the effects of the new deposit on excess and required reserves, assuming a required reserve ratio of 10%. Hint: If the change is negative, be sure to enter the value as a negative number.

3. The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 10%. The Federal Reserve buys a government bond worth $500,000 from Raphael, a customer of First Main Street Bank. He deposits the money into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's balance sheet (before the bank makes any new loans). Assets Building and Furniture/Checkable Deposit/Loans/Net Worth/Reserves $50,000/$450,000/ $500,000/$1,100,000 Liabilities Building and Furniture/Checkable Deposit/Loans/Net Worth/Reserves $50,000/$450,000/ $500,000/$1,100,000 Complete the following table to show the effects of the new deposit on excess and required reserves, assuming a required reserve ratio of 10%. Hint: If the change is negative, be sure to enter the value as a negative number.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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