In an economy, the banks prefer to keep 25% of their deposits in reserve. The population likes to keep their currency holdings equal to 10% of the deposits. Initially, there was zero money in the economy. Then the central bank buys $120 worth of T-bills from a household. The household receives $120 on its checking account. 1. the commercial bank formed reserves and gave out a loan. The population allocated the lent funds between the currency in pockets and checkable accounts. Before anything else happens, how much money is there in the economy at the end of Round 1? ANSWER: 288 For question 1 How is this answer obtained?, How would you solve question 2. 2. In Round 2, more lending, borrowing, and reserve formation takes place. How much is in DEPOSITS in the economy at the end of Round 2?
In an economy, the banks prefer to keep 25% of their deposits in reserve.
The population likes to keep their currency holdings equal to 10% of the deposits.
Initially, there was zero money in the economy. Then the central bank buys $120 worth of T-bills from a household. The household receives $120 on its checking account.
1. the commercial bank formed reserves and gave out a loan. The population allocated the lent funds between the currency in pockets and checkable accounts.
Before anything else happens, how much money is there in the economy at the end of Round 1?
ANSWER: 288 For question 1
How is this answer obtained?,
How would you solve question 2.
2. In Round 2, more lending, borrowing, and reserve formation takes place.
How much is in DEPOSITS in the economy at the end of Round 2?
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