Explanation Given information: Total bank deposit is $ 2 , 000 , 000 and legal reserves are of $ 220 , 000 . Reserve requirement is 10 % . Calculation for excess reserve : ER = Legal Reserve − Required Reserve = $220,000 − $ 200 , 000 = $ 20 , 000 Thus, the maximum amount the First Bank can lend is $20,000. Calculation for increase in money supply: Increase in money supply = Deposit Expansion Multiplier × Excess Reserve To determine (b) To compute: The amount the F bank can lend if the reserve requirement is changed to 5 % . Also, the amount by which money supply is expanded.

10th Edition

ISBN: 9781285859460

Author: BOYES, William

Publisher: Cengage Learning

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Question

Chapter 13, Problem 8E

To determine

(a)

To compute:

The maximum loan the F bank can make and alsothe increase in the money supply based on the bank's reserve position.

To determine

(b)

To compute:

The amount the F bank can lend if the reserve requirement is changed to 5 %. Also, the amount by which money supply is expanded.

Expert Solution & Answer

Chapter 13 Solutions

Economics:

Ch. 13 - Prob. 1E Ch. 13 - Prob. 2E Ch. 13 - Prob. 3E Ch. 13 - Prob. 4E Ch. 13 - Prob. 5E Ch. 13 - Prob. 6E Ch. 13 - Prob. 7E Ch. 13 - Prob. 8E Ch. 13 - Prob. 9E Ch. 13 - Prob. 10E

Ch. 13 - Prob. 11E Ch. 13 - Prob. 12E Ch. 13 - Prob. 13E Ch. 13 - Prob. 14E Ch. 13 - Prob. 15E Ch. 13 - Prob. 16E

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