5. 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 5%. Larry,a client of First Main Street Bank, deposits $200,000 into his checking account at First Main Street Bank.Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans).AssetsLiabilitiesComplete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 5%.Hint: If the change is negative, be sure to enter the value as negative number.Amount Deposited Change in Excess ReservesChange in Required Reserves(Dollars)(Dollars)(Dollars)200,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Janet, who immediately uses the funds to write a check to Felix. Felixdeposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reservesto Raphael, who writes a check to Megan, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excessreserves to Susan in turn.Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar.Increase in Deposits Increase in Required Reserves(Dollars)(Dollars)Increase in Loans(Dollars)First Main Street BankSecond Republic BankThird Fidelity BankAssume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under thesein demand deposits.assumptions, the $200,000 injection into the money supply results in an overall increase of

* SOLUTION :- From the given information the calculation is given as ,

5. 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 5%. Larry, a client of First Main Street Bank, deposits $200,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 5%. Hint: If the change is negative, be sure to enter the value as negative number. Change in Required Reserves Amount Deposited Change in Excess Reserves (Dollars) (Dollars) (Dollars)

5. 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 5%. Larry, a client of First Main Street Bank, deposits $200,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 5%. Hint: If the change is negative, be sure to enter the value as negative number. Change in Required Reserves Amount Deposited Change in Excess Reserves (Dollars) (Dollars) (Dollars)

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The economy of Lykesville currently has $15,000 worth of currency in circulation, $20,000 worth of checkable deposits, $1,300 worth of traveler's checks, and $44,000 in savings accounts. Calculate M1:
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11. Please answer the table only. The columns specifically.
QUESTION 24 LAST CHANCE BANK OF TOMBSTONE BALANCE SHEET ASSETS LIABILITIES & NET WORTH $900,000 $100,000 $300,000 $3,700,000 $2.000.000 cash in the vault: demand deposits: $5,000,000 deposits at Fed US treasury bonds: loans: Building: capital stock: $2,000,000 TOTALS: $7,000,000 TOTALS: $7,000,000 24. Given a reserve requirement ratio of 10%, what will be the maximum effect on quantity of money in circulation of a Federal Reserve sale of $100,000 worth of government securities directly to a bank? an increase of $100,000 a decrease of $1,000,000 a decrease of $100,000 an increase of $1,000,000
Consider the three functions of money discussed in class: medium of exchange, unit of account, and store of value. Choose one function and describe what it means. What would economic transactions be like without this function? Would life be better or worse?
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Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 25%. Nick, a Southeast Mutual Bank customer, deposits $1,800,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited (Dollars) 1,800,000 Change in Excess Reserves (Dollars) Change in Required Reserves (Dollars) Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Latasha, who immediately uses the funds to write a check to Jake. Jake deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of…
4. Working through an open-market operation Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets (Billions of Dollars) Total reserves 5 Checkable deposits 25 20 50 Loans Securities Total O What is the required reserve ratio? 40% 25% Liabilities and Net Worth 5% 10% Total 50 50
10. Banks in the country of Mistania have a total of $17000 in required reserves and $276000 in checkable deposits. Calculate Mistania's required reserve ratio:
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7. 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%. Hubert, a client of First Main Street Bank, deposits $500,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 10%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 500,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Eileen, who immediately uses the funds to write a check to Clancy. Clancy…
5 A bank has $210,000 in excess reserves and the required reserve ratio is 25 percent. This means the bank could have total reserves. $80,000, $10,000 $100,000, $50,000 $280,000, $70,000 $50.000, $30.000 6 If a bank's excess reserve is zero and the required reserve ratio is increased, which of the following will happen? Banks will begin to extend more credit. Banks will have positive excess reserves. Banks will begin to extend more loans. Banks will have a reserve deficiency in checkable deposit liabilities and