Suppose Moey deposits $100,000 in Bank 1 and Ming borrows $80,000 from Bank 1 to buy a Dodge Viper. The required reserve ratio for all banks (set by the Fed) is 20%. Dodge deposits the money from Ming's Viper purchase in Bank 2, wich has a capital of $20000. Assume that there are no currency drains. (a) Fill in the following balance sheets, for Bank 1 and Bank 2, respectively: Bank 1 's Balance Sheet Assets Liabilities Reserves: Loans: Demand Deposits: Bank 2's Balance Sheet Assets Reserves: Loans: Liabilities Demand Deposits: Capital : Total: b) What is the level of required reserves Bank 1 must hold after Moey's deposit? (c) What is the level of required reserves Bank 2 must hold after Dodge's deposit?
Suppose Moey deposits $100,000 in Bank 1 and Ming borrows $80,000 from Bank 1 to buy a Dodge Viper. The required reserve ratio for all banks (set by the Fed) is 20%. Dodge deposits the money from Ming's Viper purchase in Bank 2, wich has a capital of $20000. Assume that there are no currency drains. (a) Fill in the following balance sheets, for Bank 1 and Bank 2, respectively: Bank 1 's Balance Sheet Assets Liabilities Reserves: Loans: Demand Deposits: Bank 2's Balance Sheet Assets Reserves: Loans: Liabilities Demand Deposits: Capital : Total: b) What is the level of required reserves Bank 1 must hold after Moey's deposit? (c) What is the level of required reserves Bank 2 must hold after Dodge's deposit?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Suppose Moey deposits $100,000 in Bank 1 and Ming borrows $80,000 from Bank 1 to buy a Dodge Viper. The required reserve ratio for all banks (set by the Fed) is 20%. Dodge deposits the money from Ming's Viper purchase in Bank 2, wich has a capital of $20000. Assume that there are no currency drains. (a) Fill in the following balance sheets, for Bank 1 and Bank 2, respectively: Bank 1 's Balance Sheet Assets Liabilities Reserves: Loans: Demand Deposits: Bank 2's Balance Sheet Assets Reserves: Loans: Liabilities Demand Deposits: Capital : Total: b) What is the level of required reserves Bank 1 must hold after Moey's deposit? (c) What is the level of required reserves Bank 2 must hold after Dodge's deposit? (d) Are these two Required Reserves the same? If so, why? If not, why not? e) Compute the leverage for bank 2 and explain its meaning f) Compute the Increase of the money supply g) Suppose that Bank 2 there is money drain of 10% of demand deposit, i) set up the new T-account for Bank 2 il) Compute the money supply increase in the banking system iii) Compute the change in money supply between question (f) and question (g)
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