7. The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 20%. Darnell, a Southeast Mutual Bank customer, deposits $1,500,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets (Dollars) 1,500,000 Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves (Dollars) Change in Required Reserves (Dollar) Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Beth, who immediately uses the funds to write a check to Andrew. Andrew deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to Jacques, who writes a check to Eleanor, who deposits the money into her account at PJMorton Bank, PJMorton lends out all of its new excess reserves to Kyoko in turn.
7. The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 20%. Darnell, a Southeast Mutual Bank customer, deposits $1,500,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets (Dollars) 1,500,000 Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves (Dollars) Change in Required Reserves (Dollar) Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Beth, who immediately uses the funds to write a check to Andrew. Andrew deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to Jacques, who writes a check to Eleanor, who deposits the money into her account at PJMorton Bank, PJMorton lends out all of its new excess reserves to Kyoko in turn.
Chapter14: Banking And The Money Supply
Section: Chapter Questions
Problem 3.4P
Related questions
Question
Transcribed Image Text:Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar.
Southeast Mutual Bank
Walls Fergo Bank
PJMorton Bank
Increase in Deposits Increase in Required Reserves Increase in Loans
(Dollars)
(Dollar)
(Dollars)
Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these
assumptions, the $1,500,000 Injection into the money supply results in an overall increase of
in demand deposits.
Transcribed Image Text:7. The money creation process
Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at
20%. Darnell, a Southeast Mutual Bank customer, deposits $1,500,000 into his checking account at the local branch.
Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans).
Assets
Liabilities
Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%.
Hint: If the change is negative, be sure to enter the value as negative number.
Amount Deposited Change in Excess Reserves
(Dollars)
(Dollars)
1,500,000
Change in Required Reserves
(Dollar)
Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Beth, who immediately uses the funds to write a check to Andrew.
Andrew deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves
to Jacques, who writes a check to Eleanor, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess
reserves to Kyoko in turn.
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