Answered: If total reserves for a bank are…

If total reserves for a bank are $20,000, excess reserves are $15,000, and demand deposits are $100,000, then the money multiplier must be: a)20. b)15. d)10. c)5.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter19: Money Creation

Section: Chapter Questions

Problem 7SQ

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If total reserves for a bank are $20,000, excess reserves are $15,000, and demand deposits are $100,000, then the money multiplier must be: a)20. b)15. d)10. c)5.

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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. Humongous Bank decides on a policy of holding 100 reserves. Draw a T-account for the bank. 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. 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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