$\begin{array}{|l|l|}
\hline {\text { Item }} & \text { Amount } \
\hline \text { Cash held by public } & \$ 40 \text { billion } \
\hline \text { Transactions deposits } & \$ 80 \text { billion } \
\hline \text { Required reserves } & \$ 20 \text { billion } \
\hline \text { Excess reserves } & \$ 0 \text { billion } \
\hline \text { U.S. bonds held by public } & \$ 125 \text { billion } \
\hline
\end{array}$
Table 14.3
Monetary Aggregates of the U.S. Financial System Assume an original balance sheet: In Table 14.3,if the Fed changes the required reserve ratio to 10 percent,the lending capacity of the system would eventually

Question

Quizplus · Accepted Answer

The required reserve ratio is reduced to 10%, allowing banks to lend more. With $80 billion in deposits, $8 billion is needed as reserves, freeing up $12 billion ($20 billion - $8 billion) for lending. The money multiplier is 10 (1/0.10), so the lending capacity increases by $120 billion ($12 billion * 10).

Table 143 Monetary Aggregates of the U

Table 143
Monetary Aggregates of the U