Question 3 (a) Distinguish between legally required reserves and excess reserves. (b) Why don't banks hold a 100 percent reserves? How is the amount of reserves bank hold related to the amount of money the banking system creates? Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000 inc rease in demand deposits. i. Calculate the money multiplier? ii. How much additional new demand deposits could the $3,000 depos it support?

Question 3 (a) Distinguish between legally required reserves and excess reserves. (b) Why don't banks hold a 100 percent reserves? How is the amount of reserves bank hold related to the amount of money the banking system creates? Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000 inc rease in demand deposits. i. Calculate the money multiplier? ii. How much additional new demand deposits could the $3,000 depos it support?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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