Assume that banks holds no excess reserves and the public holds no currency: 1. If a bank receives a deposit inflow of $100,000 explain (using t-accounts) what happens to this bank and one additional round in the deposit creation process assuming the reserve requirement is 8%.

macmillan learning Suppose that the legal reserve ratio set by the Fed is 10% and that the Fair Bank in Fairdealing, Missouri, initially has checkable deposit equal to $240 and a reserve account of $70. A customer of Fair Bank deposits $100 into her checking account. Fair Bank loans 80% of the deposit and places the rest in its reserves at the St. Louis Fed. For simplicity, assume the borrower received the loan as cash. How much does Fair Bank have in excess reserves after the deposit and loan? Number Place the figures below to represent changes in the accounts of Fair Bank and the Federal Reserve of St. Louis' balance sheets resulting from the deposit and loan. Hint Cash: Reserves: Loans: Property: $ +$100 +$80 Balance Sheet: Fair Bank Liabilities: Net equity: +$20 -$100 -$20 +$10 -$80 -$10 Balance Sheet: Saint Louis Fed Liabilities: Cash: Property: Loans: Previous Check Answer Next Exit

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What is the value of the money multiplier when the required reserve ratio is: Instructions: Enter your responses rounded to two decimal places. (a) 16 percent? (b) 12 percent?

Reserves, Deposits and the Money Multiplier If the money multiplier is 25, then the required reserve ratio (RR) is ________. (Round to the nearest tenth when appropriate.) Select one: A. 1.3% B. 4% C. 12.5% D. 25%

Suppose the reserve requirement is 8% and a new deposit of $900 billion is made into the banking system. Create T accounts to analyze the following questions. a) Initially, reserves would increase by? b) Required reserves would increase by? c) Excess reserves would increase by? d) The first round of loans would amount to? e) The second round of loans would amount to approximately? f) The third round of loans would amount to approximately? g) For the entire macroeconomy, after the infinite rounds of loans were taken into account, money supply would increase by? h) If the Federal Reserve bought bonds worth $600 billion, money supply would increase by? i) If the Federal Reserve sold bonds worth $600 billion, money supply would decrease by?

8:30 1 19) Which of the following is a function that money serves? A) medium of exchange B) unit of value C) store of account D) All of the above are correct.

Chapter 16: Reserves = $1,500 First national bank Loaned = $8,500 Chapter 17: Deposits = $10,000 Money Created = Amount x MM 1. If the bank has to maintain a required reeserve ratio of 10% then what is the excess reserve if any? 1/P 2. If the reserve ratio is 10% then what will be money multiplier 3. How much extra money the bank will be able to create with an addtional MS 3/4 # 1/2 0 Total Reserve = Required Reserve + Excess Reserve Money Multiplier = 1/R Where R is Reserve Ratio MD 1. What is the price level at the equilibirum? 2. What is the value of money at the equilibirum? 3. If the velocity is 4, money supply is 100, price level is 10 then what will be the output? MXV=PXY P= Price level Value of Money = 1/P

Assume that a bank receives a deposit of $1,000 in cash, puts aside $200 as required reserves, and makes a loan of $800, these transactions imply that:  a) the money supply by the whole banking system can increase by $1,000.  b) the money supply by the whole banking system can increase by $4,000.  c) the money supply by the whole banking system can increase by $8,000.

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