Refer to the following balance sheet of a banking system: Suppose the required reserve ratio is 20% and the public does not initially hold any cash. Assets ($ million) Reserves Loans 500 1,000 i. Liabilities ($ million) Deposits 1,500 a. Calculate the changes in deposits, money supply and loans after the money expansion or contraction process as a result of each of the following independent events. Winnie receives a $100 million remittance from her relative overseas. She deposits the amount into the banking system. ii. Some depositors withdraw $300 million from their deposits and hold it as cash. b. To derive your answer in part (a), what are the THREE assumptions behind it?
Refer to the following balance sheet of a banking system: Suppose the required reserve ratio is 20% and the public does not initially hold any cash. Assets ($ million) Reserves Loans 500 1,000 i. Liabilities ($ million) Deposits 1,500 a. Calculate the changes in deposits, money supply and loans after the money expansion or contraction process as a result of each of the following independent events. Winnie receives a $100 million remittance from her relative overseas. She deposits the amount into the banking system. ii. Some depositors withdraw $300 million from their deposits and hold it as cash. b. To derive your answer in part (a), what are the THREE assumptions behind it?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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