Suppose the central bank injected $15 million in new reserves into the banking system and the current legal reserve requirement on deposits held by the banking system is 8 percent. Moreover, the banking system is perfectly efficient and there are no leakages of funds from that system except for the current legal reserve requirement. Please set up an EXCEL spreadsheet that shows how much in total required reserves and new deposits can be created in this banking system as a result of the injection of the $15 million in new legal reserves.
Now suppose the central bank subsequently withdraws $20 million in legal reserves from this same banking system. What level of deposits and legal reserves would ultimately result? Please demonstrate on your Excel spreadsheet.

Question

Suppose the central bank injected $15 million in new reserves into the banking system and the current legal reserve requirement on deposits held by the banking system is 8 percent. Moreover, the banking system is perfectly efficient and there are no leakages of funds from that system except for the current legal reserve requirement. Please set up an EXCEL spreadsheet that shows how much in total required reserves and new deposits can be created in this banking system as a result of the injection of the $15 million in new legal reserves.
 Now suppose the central bank subsequently withdraws $20 million in legal reserves from this same banking system. What level of deposits and legal reserves would ultimately result? Please demonstrate on your Excel spreadsheet.

Quizplus · Accepted Answer

The Answer of Suppose the central bank injected $15 million in new reserves into the banking system and the current legal reserve requirement on deposits held by the banking system is 8 percent. Moreover, the banking system is perfectly efficient and there are no leakages of funds from that system except for the current legal reserve requirement. Please set up an EXCEL spreadsheet that shows how much in total required reserves and new deposits can be created in this banking system as a result of the injection of the $15 million in new legal reserves.
 Now suppose the central bank subsequently withdraws $20 million in legal reserves from this same banking system. What level of deposits and legal reserves would ultimately result? Please demonstrate on your Excel spreadsheet.

Suppose the Central Bank Injected $15 Million in New Reserves