Macroeconomics (MindTap Course List)
10th Edition
ISBN: 9781285859477
Author: William Boyes, Michael Melvin
Publisher: Cengage Learning
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Question
Chapter 13, Problem 8E
To determine
(a)
To compute:
The maximum loan the F bank can make and alsothe increase in the money supply based on the bank's reserve position.
To determine
(b)
To compute:
The amount the F bank can lend if the reserve requirement is changed to
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Students have asked these similar questions
In the United States, the Federal Reserve sets the reserve requirement, which banks must meet through deposits at the Federal Reserve district
banks and cash held at the bank. What does this requirement achieve? Check all that apply.
a. It ensures that banks cannot hoard money by holding too many reserves.
b. It means that a bank must have one dollar of deposits for every dollar it lends out.
c. It helps to prevent bank runs by reassuring the public that banks will not make too many loans and run out of cash.
d. It helps to facilitate transfers of funds between banks when a customer from one bank writes a check to a customer of another bank.
The task I am struggling with:
Tracy Williams deposits $500 that was in her sock drawer into a checking account at the local bank. The reserve ratio is 10%.
a) how dies the deposit initially change the T-account of the local bank? How does it change the money supply?
b) If the bank maintains a reserve ratio of 10%, how will it respond to the new deposit?
c) if every time the bank makes a loan, the loan results in a new checkable bank deposit in a different bank equal to the amount of the loan, by how much could the total money supply in the economy expand in response to Tracy´s initial cash deposit of $500?
Thank you very much for your help.
Suppose Adrienne receives a payment in cash of $400 and she deposits it in a bank.
i. If the banking system is 100 percent reserve, how does the money supply change?
i. If the reserve requirement is 10 percent and the bank holds no excess reserve, how does the money supply
change?
in. If the reserve requirement is 10 percent and the bank holds an excess reserve of 2 percent, how does the
money supply change?
iv. Now suppose the reserve ratio is 25 percent. How much money can be created
from $100 of reserves? Show your work.
Chapter 13 Solutions
Macroeconomics (MindTap Course List)
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