Assets Liabilities Building and furniture $50,000 $50,000 Building and furniture Deposits Deposits $450,000 $450,000 Loans Loans $500,000 $500,000 Net worth Net worth $1,100,000 $1,100,000 Reserves Reserves Complete the tollowing 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 Kyoko, who immediately uses the funds to write a check to Jacques. Jacques deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Sean, who writes a check to Rina, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess reserves to Yvette 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 Increase in Loans (Dollars) (Dollars) (Dollars) First Main Street Bank Second Republic Bank Third Fidelity Bank Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $500,000 injection into the money supply results in an overall increase of ▼ in demand deposits. $500,000 $4,500,000 $5,000,000

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

See similar textbooks

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%. Musashi, 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).

Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans).

(Given picture and choices are below)

Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $500,000 injection into the money supply results in an overall increase of ____________ in demand deposits.

Assets
Liabilities
Building and furniture
$50,000
$50,000
Building and furniture
Deposits
Deposits
$450,000
$450,000
Loans
Loans
$500,000
$500,000
Net worth
Net worth
$1,100,000
Reserves
$1,100,000
Reserves
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 Kyoko, who immediately uses the funds to write a check to Jacques.
Jacques
the funds imm
into his checking account
Second Republic Bank. Then Second
blic Bank lends out all of its
ew excess
reserves to Sean, who writes a check to Rina, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new
excess reserves to Yvette 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
Increase in Loans
(Dollars)
(Dollars)
(Dollars)
First Main Street Bank
Second Republic Bank
Third Fidelity Bank
Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these
assumptions, the $500,000 injection into the money supply results in an overall increase of
in demand de
sits.
$500,000
$4,500,000
$5,000,000

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