Principles of Economics 2e
2nd Edition
ISBN: 9781947172364
Author: Steven A. Greenlaw; David Shapiro
Publisher: OpenStax
Textbook Question
Chapter 27, Problem 31P

Humongous Bank is the only bank in the economy. The people in this economy have \$ 2 0 million in money, and they deposit all their money in Humongous Bank.

1. Humongous Bank decides on a policy of holding 1 00 % reserves. Draw a T-account for the bank.
2. Humongous Bank is required to hold 5 % of its existing \$ 2 0 million as reserves, and to loan out the rest. Draw a T-account for the bank after it has made its first round of loans.
3. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original \$ 19 million loan?

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A bank has the following deposits and​ assets:   Checkable deposits held by individuals and​ businesses, ​\$380   Savings deposits held by individuals and​ businesses, ​\$1,280 Small time​ deposits, ​\$575 Loans to​ businesses, ​\$1,809 Outstanding credit card​ balances, ​\$300 Government​ securities, ​\$125 Currency in the​ bank's vault, ​\$1 Reserve account at the​ Fed, ​\$8   Calculate the​ bank's total​ deposits, deposits that are part of​ M1, and deposits that are part of M2. The​ bank's total deposits are ​\$ Deposits that are part of M1 are ​\$ Deposits that are part of M2 are ​\$
Humongous Bank is the only bank in the economy.The people in this economy have \$20 million in money,and they deposit all their money in Humongous Bank.a. Humongous Bank decides on a policy of holding100% reserves. Draw a T-account for the bank.b. Humongous Bank is required to hold 5% of itsexisting \$20 million as reserves, and to loan outthe rest. Draw a T-account for the bank after ithas made its first round of loans.c. Assume that Humongous bank is part of amultibank system. How much will money supplyincrease with that original \$19 million loan?
You just deposited \$4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 20%, how much will your deposit increase the total value of checkable bank deposits? If the reserve requirement is 8%, how much will your deposit increase the total value of checkable deposits? Increasing the reserve requirement decreases the money supply. %24 %24
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