Answered: Economy Alpha contains many banks. One…

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter19: Money Creation

Section: Chapter Questions

Problem 15SQ

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Economy Alpha contains many banks. One of them is Bank One, which has a reserve requirement of 10% and the following information:

$5000 cash in Bank One's vault
$2000 US government bonds held by Bank One
$60,000 checking deposits in Bank One
$3000 Deposit in the Fed for Bank One
$10,000 savings deposits in Bank One

Calculate Bank One's excess reserves

Calculate the maximum amount the entire banking system can create in new money, starting with Bank One's reserves information

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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