Suppose bank A, which faces a reserve requirement of 10 percent, receives a $1000 cash deposit from a customer.Assuming that it wishes to hold no excess reserves, determine how much the bank should lend. Show your answer on Bank A’s balance sheet.Assuming that the loan shown in Bank A’s balance sheet is redeposited in Bank B, show the changes in Bank’s balance sheet if it lends out the maximum possible.Repeat this process for three additional banks: C, D and E.Using the simple money multiplier, calculate the total change in the money supply resulting from the $1000 initial deposit.Assume that Banks A, B, C, D and E each wish to hold 5 percent excess reserves. How would holding this level of excess reserves affect the total change in the money supply?

Demand deposits are lent by banks to the public for making money that creates more money. the…

Answered: Suppose bank A, which faces a reserve…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose bank A, which faces a reserve requirement of 10 percent, receives a $1000 cash deposit from a customer.

Assuming that it wishes to hold no excess reserves, determine how much the bank should lend. Show your answer on Bank A’s balance sheet.
Assuming that the loan shown in Bank A’s balance sheet is redeposited in Bank B, show the changes in Bank’s balance sheet if it lends out the maximum possible.
Repeat this process for three additional banks: C, D and E.
Using the simple money multiplier, calculate the total change in the money supply resulting from the $1000 initial deposit.
Assume that Banks A, B, C, D and E each wish to hold 5 percent excess reserves. How would holding this level of excess reserves affect the total change in the money supply?

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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