Just this page thank you 4 MacroeconomicsLESSON 3 ACTIVITY 37The Multiple Expansion of Checkable DepositsThis activity is designed to illustrate how banks' lending of excess reserves can expand the nation'smoney supply and to explain how the Federal Reserve System can limit the growth of the moneysupply using the required reserve ratio.Part AAssume thatI the required reserve ratio is 10 percent of checkable deposits and banks lend out the other 90percent of their deposits (banks wish to hold no excess reserves) andI all money lent out by one bank is redeposited in another bank.1. Under these assumptions, if a new checkable deposit of $1,000 is made in Bank 1,(A) how much will Bank 1 keep as required reserves? $.(B) how much will Bank 1 lend out? $(C) how much will be redeposited in Bank 2? $(D) how much will Bank 2 keep as required reserves? $_(E) how much will Bank 2 lend out? $(F) how much will be redeposited in Bank 3? $.2. Use your answers to Question 1 to help you complete the table in Figure 37.1. Fill in the blanks inthe table, rounding numbers to the second decimal (for example, $59.049 = $59.05). After youhave completed the table, answer the questions that follow by filling in the blanks or underliningthe correct answer in parentheses so each statement is true.* Figure 37.1Checkable Deposits, Reserves and Loans in Seven BanksBank No.New Checkable Deposits10% Fractional ReservesLoans$1,000.00$100.00$900.001900.00810.00281.003656.10459.057531.44478.30All other banks combinedTotal for all banks$10,000.00$9,000.00Adapted from Phillip Saunders, Introduction to Macroeconomics: Student Workbook, 18th ed. (Bloomington, Ind., 1998). ConyrichtPhillip Saunders. All rights reserved. Contributions made by Robert Wedge, Massachusetts Council on Economic EducationWaltham, Mass., and Lisa C. Herman-Ellison, Kokomo High School-South Campus, Kokomo, Ind.Advanced Placement Economics Macroeconomics: Student ActivitiesNational Council on Economic Education, New York, N.Y.195

Dear student, you have asked multiple sub-part questions in a single post. In such a case, I will be…

Part A Assume that m the required reserve ratio is 10 percent of checkable deposits and banks lend out the other 90 percent of their deposits (banks wish to hold no excess reserves) and I all money lent out by one bank is redeposited in another bank. 1. Under these assumptions, if a new checkable deposit of $1,000 is made in Bank 1, (A) how much will Bank 1 keep as required reserves? $. (B) how much will Bank 1 lend out? $. (C) how much will be redeposited in Bank 2? $. ves? $

Part A Assume that m the required reserve ratio is 10 percent of checkable deposits and banks lend out the other 90 percent of their deposits (banks wish to hold no excess reserves) and I all money lent out by one bank is redeposited in another bank. 1. Under these assumptions, if a new checkable deposit of $1,000 is made in Bank 1, (A) how much will Bank 1 keep as required reserves? $. (B) how much will Bank 1 lend out? $. (C) how much will be redeposited in Bank 2? $. ves? $

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Just this page thank you

4 Macroeconomics
LESSON 3 ACTIVITY 37
The Multiple Expansion of Checkable Deposits
This activity is designed to illustrate how banks' lending of excess reserves can expand the nation's
money supply and to explain how the Federal Reserve System can limit the growth of the money
supply using the required reserve ratio.
Part A
Assume that
I the required reserve ratio is 10 percent of checkable deposits and banks lend out the other 90
percent of their deposits (banks wish to hold no excess reserves) and
I all money lent out by one bank is redeposited in another bank.
1. Under these assumptions, if a new checkable deposit of $1,000 is made in Bank 1,
(A) how much will Bank 1 keep as required reserves? $.
(B) how much will Bank 1 lend out? $
(C) how much will be redeposited in Bank 2? $
(D) how much will Bank 2 keep as required reserves? $_
(E) how much will Bank 2 lend out? $
(F) how much will be redeposited in Bank 3? $.
2. Use your answers to Question 1 to help you complete the table in Figure 37.1. Fill in the blanks in
the table, rounding numbers to the second decimal (for example, $59.049 = $59.05). After you
have completed the table, answer the questions that follow by filling in the blanks or underlining
the correct answer in parentheses so each statement is true.
* Figure 37.1
Checkable Deposits, Reserves and Loans in Seven Banks
Bank No.
New Checkable Deposits
10% Fractional Reserves
Loans
$1,000.00
$100.00
$900.00
1
900.00
810.00
2
81.00
3
656.10
4
59.05
7
531.44
478.30
All other banks combined
Total for all banks
$10,000.00
$9,000.00
Adapted from Phillip Saunders, Introduction to Macroeconomics: Student Workbook, 18th ed. (Bloomington, Ind., 1998). Conyricht
Phillip Saunders. All rights reserved. Contributions made by Robert Wedge, Massachusetts Council on Economic Education
Waltham, Mass., and Lisa C. Herman-Ellison, Kokomo High School-South Campus, Kokomo, Ind.
Advanced Placement Economics Macroeconomics: Student Activities
National Council on Economic Education, New York, N.Y.
195

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