In Chapter 11 you learned about fractional-reserve banking. A fractional-reserve banking system creates money. We use a fractional reserve banking system in the United States. Assume that the Federal Reserve purchases a government bond from you for $1,000 and that you deposit all of that amount in your checking account at your bank. Further assume that the reserve ratio is 5% and that your bank holds no excess reserves. -What is the value of the money multipler? - After infinite rounds of depositing and lending, how much money could be created from the Fed buying your bond? Assume that no bank hold excess reserves and no people hold out money from their loans. - If the reserve ratio was higher, 10%, would this create more or less money in a fractional-reserve banking system?
In Chapter 11 you learned about fractional-reserve banking. A fractional-reserve banking system creates money. We use a fractional reserve banking system in the United States. Assume that the Federal Reserve purchases a government bond from you for $1,000 and that you deposit all of that amount in your checking account at your bank. Further assume that the reserve ratio is 5% and that your bank holds no
-What is the value of the money multipler?
- After infinite rounds of depositing and lending, how much money could be created from the Fed buying your bond? Assume that no bank hold excess reserves and no people hold out money from their loans.
- If the reserve ratio was higher, 10%, would this create more or less money in a fractional-reserve banking system?
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