Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 5%.Hint: If the change is negative, be sure to enter the value as negative number.Amount Deposited Change in Excess Reserves Change in Required Reserves(Dollars)(Dollars)(Dollars)200,000Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Cho, who immediately uses the funds to write a check to Bob. Bobdeposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to Kenji,who writes a check to Ginny, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess reserves to Lucia inturn.Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar.Southeast Mutual BankWalls Fergo BankPJMorton BankIncrease in Deposits Increase in Required Reserves Increase in Loans(Dollars)(Dollars)(Dollars)$400,000$3,800,000$4,000,000Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under theseassumptions, the $200,000 injection into the money supply results in an overall increase ofin demand deposits. 7. The money creation processSuppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at5%. Eric, a Southeast Mutual Bank customer, deposits $200,000 into his checking account at the local branch.Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans).Building and furnitureLiabilitiesBuilding and furniture AssetsDepositsDepositsLoansLoansNet worthReserves$10,000$190,000$200,000$420,000Net worthReserves$10,000$190,000$200,000$420,000

In simple terms, Money creation is the process of increase in money supply in a particular economy.…

7. The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 5%. Eric, a Southeast Mutual Bank customer, deposits $200,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Building and furniture Assets Building and furniture Liabilities Deposits Deposits Loans Loans Net worth Reserves Net worth Reserves $10,000 $190,000 $200,000 $420,000 $10,000 $190,000 $200,000 $420,000

7. The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 5%. Eric, a Southeast Mutual Bank customer, deposits $200,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Building and furniture Assets Building and furniture Liabilities Deposits Deposits Loans Loans Net worth Reserves Net worth Reserves $10,000 $190,000 $200,000 $420,000 $10,000 $190,000 $200,000 $420,000

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Monetary System

Section: Chapter Questions

Problem 3PA

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