Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 25%. Paolo, a Southeast Mutual Bank customer, deposits $1,800,000 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). Deposits Assets (Dollars) 1,800,000 $1,800,000 Reserves Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves (Dollars) Southeast Mutual Bank Walls Fergo Bank PJMorton Bank Change in Required Reserves (Dollars) $450,000 Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Lucia, who immediately uses the funds to write a check to Kenji. Kenji deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to Van, who writes a check to Sharon, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess reserves to Amy in turn. 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. Increase in Deposits Increase in Required Reserves (Dollars) (Dollars) Increase in Loans (Dollars) Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,800,000 injection into the money supply results in an overall increase of in demand deposits.
Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 25%. Paolo, a Southeast Mutual Bank customer, deposits $1,800,000 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). Deposits Assets (Dollars) 1,800,000 $1,800,000 Reserves Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves (Dollars) Southeast Mutual Bank Walls Fergo Bank PJMorton Bank Change in Required Reserves (Dollars) $450,000 Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Lucia, who immediately uses the funds to write a check to Kenji. Kenji deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to Van, who writes a check to Sharon, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess reserves to Amy in turn. 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. Increase in Deposits Increase in Required Reserves (Dollars) (Dollars) Increase in Loans (Dollars) Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,800,000 injection into the money supply results in an overall increase of in demand deposits.
Chapter12: Money And The Banking System
Section: Chapter Questions
Problem 3TY
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Transcribed Image Text:Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at
25%. Paolo, a Southeast Mutual Bank customer, deposits $1,800,000 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).
Deposits
Assets
(Dollars)
1,800,000
$1,800,000 ▼
Reserves
Liabilities
Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%.
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)
Southeast Mutual Bank
Walls Fergo Bank
PJMorton Bank
$450,000
Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Lucia, who immediately uses the funds to write a check to Kenji. Kenji
deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to Van,
who writes a check to Sharon, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess reserves to Amy in
turn.
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.
Increase in Deposits Increase in Required Reserves
(Dollars)
(Dollars)
Increase in Loans
(Dollars)
Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these
assumptions, the $1,800,000 injection into the money supply results in an overall increase of
in demand deposits.
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