Principles of Macroeconomics 2e
Principles of Macroeconomics 2e
2nd Edition
ISBN: 9781947172388
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
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Chapter 14, Problem 31P

Humongous Bank is the only bank in the economy. The people in this economy have $20 million in money, and they deposit all their money in Humongous Bank.

  1. Humongous Bank decides on a policy of holding 100% reserves. Draw a T-account for the bank.
  2. Humongous Bank is required to hold 5% of its existing $20 million as reserves, and to loan out the rest. Draw a T-account for the bank after it has made its first round of loans.
  3. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original $19 million loan?

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Principles of Macroeconomics 2e

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