Table 14.2 Monetary Aggregates of the U.S.Financial System
$\begin{array}{|l|r|}
\hline\text { Item } & \text { Amount } \
\hline \text { Cash held by public } & \text { \$100billion } \
\hline\text { Transactions deposits } & \text { \$300billion } \
\hline\text { Required reserves } & \text { \$30billion } \
\hline\text { Excess reserves } & \text { \$0billion } \
\hline \text { U.S. bonds held by public } & \$ 475 \text { billion }\
\hline
\end{array}$

Assume an original balance sheet: If the Fed changes the required reserve ratio in Table 14.2 to 15 percent,the lending capacity of the system will eventually

Question

Table 14.2 Monetary Aggregates of the U.S.Financial System
$\begin{array}{|l|r|}
\hline\text { Item } & \text { Amount } \
\hline \text { Cash held by public } & \text { \$100billion } \
\hline\text { Transactions deposits } & \text { \$300billion } \
\hline\text { Required reserves } & \text { \$30billion } \
\hline\text { Excess reserves } & \text { \$0billion } \
\hline \text { U.S. bonds held by public } & \$ 475 \text { billion }\
\hline 
\end{array}$

Assume an original balance sheet: If the Fed changes the required reserve ratio in Table 14.2 to 15 percent,the lending capacity of the system will eventually

Quizplus · Accepted Answer

The required reserve ratio increase from 10% (originally $30 billion of $300 billion) to 15% means banks must hold more reserves, reducing their lending capacity. The decrease in lending capacity is calculated as the change in reserves ($15 billion) times the money multiplier (10), resulting in a $100 billion decrease.

Table 142 Monetary Aggregates of the U Assume an Original Balance Sheet: If the Fed Changes the Item