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

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

Economics (MindTap Course List)
Economics (MindTap Course List)
13th Edition
ISBN:9781337617383
Author:Roger A. Arnold
Publisher:Roger A. Arnold
Chapter13: The Federal Reserve System
Section: Chapter Questions
Problem 8WNG
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Question 3 –

a.  Distinguish between legally required reserves and excess reserves. 

b.  Why don’t banks hold a 100 percent reserves? 

c.  How is the amount of reserves bank hold related to the amount of money the banking system creates? 

d.   Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000 increase in demand deposits.

      i.  Calculate the money multiplier? 

     ii.  How much additional new demand deposits could the $3,000 deposit support?

 

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