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Use the bank balance sheet to answer the questions: Assets Total Reserves Loans Treasury Bonds Liabilities $5,000 Demand Deposits $20,000 $15,000 Owner's Equity $10,000 $10,000 Total $30,000 6. If the reserve requirement is 10%, how much is this bank's required reserves and excess reserves? Total $30,000 7. What is the maximum possible increase in the money supply if the bank loans out all their excess reserves? 8. Assume a customer deposits $5,000 in this bank, would the money supply initially increase, decrease, or stay the same? Explain.

Use the bank balance sheet to answer the questions: Assets Total Reserves Loans Treasury Bonds Liabilities $5,000 Demand Deposits $20,000 $15,000 Owner's Equity $10,000 $10,000 Total $30,000 6. If the reserve requirement is 10%, how much is this bank's required reserves and excess reserves? Total $30,000 7. What is the maximum possible increase in the money supply if the bank loans out all their excess reserves? 8. Assume a customer deposits $5,000 in this bank, would the money supply initially increase, decrease, or stay the same? Explain.

Economics:
Economics:
10th Edition
ISBN:9781285859460
Author:BOYES, William
Publisher:BOYES, William
Chapter13: Monetary Policy
Section: Chapter Questions
Problem 8E
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Banking and the Expansion of the Money Supply
Use the bank balance sheet to answer the questions: Assets Total Reserves Loans Treasury Bonds Liabilities $5,000 Demand Deposits $20,000 $15,000 Owner's Equity $10,000 $10,000 Total $30,000 6. If the reserve requirement is 10%, how much is this bank's required reserves and excess reserves? Total $30,000 7. What is the maximum possible increase in the money supply if the bank loans out all their excess reserves? 8. Assume a customer deposits $5,000 in this bank, would the money supply initially increase, decrease, or stay the same? Explain. 9. After the $5,000 deposit, calculate the new demand deposits and excess reserves? 10. What is the maximum possible increase in the money supply from the $5000 deposit?
Transcribed Image Text:Use the bank balance sheet to answer the questions: Assets Total Reserves Loans Treasury Bonds Liabilities $5,000 Demand Deposits $20,000 $15,000 Owner's Equity $10,000 $10,000 Total $30,000 6. If the reserve requirement is 10%, how much is this bank's required reserves and excess reserves? Total $30,000 7. What is the maximum possible increase in the money supply if the bank loans out all their excess reserves? 8. Assume a customer deposits $5,000 in this bank, would the money supply initially increase, decrease, or stay the same? Explain. 9. After the $5,000 deposit, calculate the new demand deposits and excess reserves? 10. What is the maximum possible increase in the money supply from the $5000 deposit?
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