Bundle: Exploring Macroeconomics, Loose-leaf Version, 7th + LMS Integrated MindTap Economics, 1 term (6 months) Printed Access Card
7th Edition
ISBN: 9781305784802
Author: Robert L. Sexton
Publisher: Cengage Learning
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Chapter 17, Problem 14P
To determine
(a)
To compute:
The potential change in demand deposits for the given situation if the
To determine
(b)
To compute:
The potential change in demand deposits for the given situation if the required reserve ratio is
To determine
(c)
To compute:
The potential change in demand deposits for the given situation if the required reserve ratio is
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John deposits $1,600 into his checking account. If the reserve ratio is 5%, what are the
required and excess reserves?
Required reserves: $
Excess reserves: $
Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 25%. The Federal Reserve buys a government bond worth $1,800,000 from Felix, a customer of First Main Street Bank. He deposits the money into his checking account at First Main Street Bank.
Now, suppose First Main Street Bank loans out all of its new excess reserves to Deborah, who immediately writes a check for the full amount to Carlos. Carlos then immediately deposits the funds in his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Larry, who writes a check to Janet, who deposits the money in her account at Third Fidelity Bank. Finally, Third Fidelity lends out all of its new excess reserves to Megan.
Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,800,000 injection…
if a bank has required reserves of $45,000,000, excess reserves of $12,000,000, and deposits of $90,000,000 with a required reserve ratio of 50%, how much can the bank lend out?
Chapter 17 Solutions
Bundle: Exploring Macroeconomics, Loose-leaf Version, 7th + LMS Integrated MindTap Economics, 1 term (6 months) Printed Access Card
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Similar questions
- If the reserve ratio was 20% and someone deposited an additional $8,000, what would be the maximum increase in total deposits?arrow_forwardIf the required reserve ratio is 0.10, the maximum increase in checking account deposits that will result from an increase in bank reserves of $10,000 is $200000. (Enter your response as an integer.)arrow_forwardWhen Christine deposits $1,000 in Bank A, and there is a reserve requirement ratio of 10%, how much can Bank A lend out?arrow_forward
- Find the required reserve if the excess reserve is $600 and the actual reserve is $100arrow_forwardIf the required reserve ratio (RRR) in U.S. is 10 percent and you deposit $5,000, which is wired from your parents’ bank account in Germany to your checking account in the U.S. National Bank, then the change in the U.S. money supply eventually should be Group of answer choices a $45,000 increase. a $5,000 increase. no change. a $50,000 increase.arrow_forwardIf a Bank accepts a deposit of $1,000 and the required reserve ratio is 20%, how much can the Bank lend to a potential borrower? A) $900 B) $800 C) $600 D) $400arrow_forward
- Excess reserves are insurance from deposit outflow. Suppose you hold 15 million required reserves and 45 million excess reserves at the central bank. The total interest payment on reserves from the central bank is 0.3%. If you do not hold your excess reserves at the bank, you may take loans and earn 4% in average. What is the cost of holding excess reserve at the central bank?arrow_forwardIf a bank has total reserves of $175,000 and $1,000,000 in deposits, how much money can it lend if the required reserve ratio is 5%arrow_forwardIf a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has total reserves of$36,000arrow_forward
- When $1 million is deposited at a bank, the required reserve ratio is 20 percent, and the bank chooses not to hold any excess reserves but instead makes loans, then in the bank's final balance sheet. Choose form options A) the assets at the bank increase by $200,000. B) the liabilities of the bank increase by $200,000. C) reserves increase by $200,000. D) all of the above occur.arrow_forwarda) Suppose that Tk.10,000 in new taka bills (never seen before) falls magically from the sky into your hands. What are the minimum increase and the maximum increase in the money supply that may result? Assume the required reserve ratio is 10 percent. Explain in details.b) Suppose you receive Tk. 10,000 from your grandmother and deposits the money in a saving account. your grandmother gave you the money by writing a check on her saving account. Would the maximum increase in the money supply still be what you found it to be in part a) where you received the money from the sky? Why or why not? Explain in details. c) Suppose that instead you getting Tk. 10,000 from the sky or a check through your grandmother, you get the money from your mother who had buried it in a can in her backyard. In this case, would the maximum increase in the money supply be what you found it to be in part a)? Why or why not? Explain in details.arrow_forwardA financial depository institution's reserve requirement is a specified percentage of: Group of answer choices deposits that must be kept as actual reserves. regulated reserves provided by the federal government. required reserves that must be kept as part of actual reserves. actual reserves kept at the federal reserve. excess reserves that must be backed as required reserves.arrow_forward
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