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ECON MACRO 5th Edition by William McEachern
Edition 5ISBN: 978-1305659094ECON MACRO 5th Edition by William McEachern
Edition 5ISBN: 978-1305659094 Exercise 5
MONEY CREATION Suppose Bank A, which faces a reserve requirement of 10 percent, receives a $1,000 checking deposit from a customer.
a. Assuming that it wishes to hold no excess reserves, determine how much the bank should lend. Show these changes on Bank A's balance sheet.
b. Assuming that the loan shown in Bank A's balance sheet is redeposited in Bank B, show the changes in Bank B's balance sheet if it lends out the maximum possible.
c. Repeat this process for three additional banks: C, D, and E.
d. Using the simple money multiplier, calculate the total change in the money supply resulting from the $1,000 initial deposit.
e. Assume Banks A, B, C, D, and E each wish to hold 5 percent excess reserves. How would holding this level of excess reserves affect the total change in the money supply?
a. Assuming that it wishes to hold no excess reserves, determine how much the bank should lend. Show these changes on Bank A's balance sheet.
b. Assuming that the loan shown in Bank A's balance sheet is redeposited in Bank B, show the changes in Bank B's balance sheet if it lends out the maximum possible.
c. Repeat this process for three additional banks: C, D, and E.
d. Using the simple money multiplier, calculate the total change in the money supply resulting from the $1,000 initial deposit.
e. Assume Banks A, B, C, D, and E each wish to hold 5 percent excess reserves. How would holding this level of excess reserves affect the total change in the money supply?
Explanation
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Given information:
• Required reserve r...
ECON MACRO 5th Edition by William McEachern
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