Problem 2: Fractional Reserve Banking Suppose your little cousin decides to take $500 out of her piggy bank at home and place it in the bank. The reserve requirement is 10%. You tell her that by putting cash into the bank, she is going to be able to create more money for the economy through fractional reserve banking. a. If the bank holds only required reserves, it will keep $ of her deposit in cash and lend out $ b. If everyone who receives the money continues to put all of the money in the banking system, the $500 will eventually become up to $ in total deposits. c. This means your cousin's $500 could create up to $ in new money. She is super impressed and decides to study economics.

Problem 2: Fractional Reserve Banking Suppose your little cousin decides to take $500 out of her piggy bank at home and place it in the bank. The reserve requirement is 10%. You tell her that by putting cash into the bank, she is going to be able to create more money for the economy through fractional reserve banking. a. If the bank holds only required reserves, it will keep $ of her deposit in cash and lend out $ b. If everyone who receives the money continues to put all of the money in the banking system, the $500 will eventually become up to $ in total deposits. c. This means your cousin's $500 could create up to $ in new money. She is super impressed and decides to study economics.

MACROECONOMICS

14th Edition

ISBN:9781337794985

Author:Baumol

Publisher:Baumol

Chapter12: Money And The Banking System

Section: Chapter Questions

Problem 3DQ

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. Suppose that the T-account for Nan Bank Inc. is as follows:Assets LiabilitiesReserves $100,000Loans $400,000 Deposits $500,000. If the Bank of Canada requires banks to hold 5 percent of deposits reserves, how much in excess reserves does Nan Bank Inc. now hold?Assume that all other banks hold only the required amount of reserves. IfNan Bank Inc. decides to reduce its reserves to only the required amount, byhow much would the economy's money supply increase?
a. Distinguish between legally required reserves and excess reserves. b. Why don’t banks hold a 100 percent reserves? How is the amount of reserves bank hold related to the amount of money the banking system creates? c. Define the term money multiplier? d. Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000 increase in demand deposits. Calculate the money multiplier? How much additional new demand deposits couldthe $3,000 deposit support?
§Suppose that the T-account for First National Bank is as follows: Assets Liabilities Reserves: 90.000-TL Deposits: 500.000-TL Loans: 410.000-TL § §If the Central Bank requires banks to hold 10% of deposits as reserves, how much in excess reserves does First National Bank now hold? MM=1/rr MM=1/(10/100) MM=10 40000*10=400000TL §Assume that all other banks hold only the required amount of reserves. If First National decides to reduce its reserves to only the required amount, by how much would the economy’s money supply increases?
Assume that a bank has on its asset side reserves of 1000 and loans of 6000 and on itsliability side deposits of 7000. Assume that the required reserve ratio is 10 percent.a. How much is the bank required to hold as reserves given its deposits of 7000?
c. Define the term money multiplier? d. Assume that Lucky Bank is required to hold a 10% deposits as reserves, and there is a $3000 increase in demand deposits. Calculate the money multiplier? How much additional new demand deposits couldthe $3,000 deposit support?
Assume that a bank has on its asset side reserves of 1000 and loans of 6000 and on its liability side deposits of 7000. Assume that the required reserve ratio is 10 percent. a. How much are its excess reserve.
You take $100 you had kept under your mattressand deposit it in your bank account. If this $100stays in the banking system as reserves and if bankshold reserves equal to 10 percent of deposits, byhow much does the total amount of deposits in thebanking system increase? By how much does themoney supply increase?