Chapter 17, Problem 18AP

To determine

The effect on reserves and the monetary base on the basis of the given conditions and to useT-account to determine the answer if the Fed lends five banks a total of $100 million but rgedepositors withdraw $50

Concept introduction:

The fixed portion of deposits, the rate which is decided by the central bank, which the banks have to maintain with the central bank, is called the reserve ratio.

Monetary Base: It is the sum of reserve deposits and currency. It is also known as high powered money.