Assume that the following data describe the current condition of the commercial banking system: Total reserves: Transactions deposits: Cash held by public: Required reserve ratio: Value $50 billion $800 billion $350 billion 0.05 a. How large is the money supply (M1)? b. Are the banks fully utilizing their lending capacity? Banks currently have Now assume that the public deposited another $20 billion in cash in transactions accounts. c. What would happen to the money supply initially (before any lending takes place)? Assuming the $20 billion in cash is not new money in the system, M1 will d. How much would the total lending capacity of the banking system be after this portfolio switch? e. How large would the money supply be if the banks fully utilized their lending capacity? |$ |$ $ 1,150 billion not change ✓ I$ billion in 10.0✔ excess reserves. 50 X billion 1,350 billion

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