If all banks operate under a full reserve system, how much money is created by the banking system with a $100 deposit of gold? What would happen under a fractional reserve system where the reserve ratio chosen by all banks was 5%? Draw a model for the market of loanable funds. Suppose the equilibrium interest rate is 10 percent. Now, show the effects of a law that states no funds can be lent at a rate greater than 5 percent.

If all banks operate under a full reserve system, how much money is created by the banking system with a $100 deposit of gold? What would happen under a fractional reserve system where the reserve ratio chosen by all banks was 5%? Draw a model for the market of loanable funds. Suppose the equilibrium interest rate is 10 percent. Now, show the effects of a law that states no funds can be lent at a rate greater than 5 percent.

Exploring Economics

8th Edition

ISBN:9781544336329

Author:Robert L. Sexton

Publisher:Robert L. Sexton

Chapter25: Money, Banking, And The Federal Reserve System

Section: Chapter Questions

Problem 16P

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Question

If all banks operate under a full reserve system, how much money is created by the banking system with a $100 deposit of gold? What would happen under a fractional reserve system where the reserve ratio chosen by all banks was 5%?
Draw a model for the market of loanable funds. Suppose the equilibrium interest rate is 10 percent. Now, show the effects of a law that states no funds can be lent at a rate greater than 5 percent.

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