Humongous Bank is the only bank in the economy.The people in this economy have $20 million in money,and they deposit all their money in Humongous Bank.a. Humongous Bank decides on a policy of holding100% reserves. Draw a T-account for the bank.b. Humongous Bank is required to hold 5% of itsexisting $20 million as reserves, and to loan outthe rest. Draw a T-account for the bank after ithas made its first round of loans.c. Assume that Humongous bank is part of amultibank system. How much will money supplyincrease with that original $19 million loan?
Humongous Bank is the only bank in the economy.The people in this economy have $20 million in money,and they deposit all their money in Humongous Bank.a. Humongous Bank decides on a policy of holding100% reserves. Draw a T-account for the bank.b. Humongous Bank is required to hold 5% of itsexisting $20 million as reserves, and to loan outthe rest. Draw a T-account for the bank after ithas made its first round of loans.c. Assume that Humongous bank is part of amultibank system. How much will money supplyincrease with that original $19 million loan?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Humongous Bank is the only bank in the economy.
The people in this economy have $20 million in money,
and they deposit all their money in Humongous Bank.
a. Humongous Bank decides on a policy of holding
100% reserves. Draw a T-account for the bank.
b. Humongous Bank is required to hold 5% of its
existing $20 million as reserves, and to loan out
the rest. Draw a T-account for the bank after it
has made its first round of loans.
c. Assume that Humongous bank is part of a
multibank system. How much will money supply
increase with that original $19 million loan?
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