Title: Understanding Reserve Requirements and the Money Supply---You just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar.1. **If the reserve requirement is 20%, how much will your deposit increase the total value of checkable bank deposits?** - $ _______2. **If the reserve requirement is 8%, how much will your deposit increase the total value of checkable deposits?** - $ _______3. **Increasing the reserve requirement** [decreases/increases] **the money supply.**---In the context of banking, "reserve requirement" refers to the fraction of deposits that a bank must hold as reserves, rather than lending out. This requirement determines how much money a bank can create with each dollar of reserves. By manipulating this reserve requirement, central banks can influence the money supply in the economy. For example, a higher reserve requirement means banks can lend out less money, thereby decreasing the money supply. Conversely, a lower reserve requirement allows banks to lend more, increasing the money supply. This exercise demonstrates how changes in reserve requirements impact checkable deposits and overall money supply.

To ascertain the value of checkable bank deposits: a) Given: Initial deposits = $4000 Reserve…

You just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 20%, how much will your deposit increase the total value of checkable bank deposits? If the reserve requirement is 8%, how much will your deposit increase the total value of checkable deposits? Increasing the reserve requirement decreases the money supply. %24 %24

You just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 20%, how much will your deposit increase the total value of checkable bank deposits? If the reserve requirement is 8%, how much will your deposit increase the total value of checkable deposits? Increasing the reserve requirement decreases the money supply. %24 %24

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Ee 497.
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