Suppose again that checkable deposits started off at $1,300,000 in First Main Street Bank, the required reserve ratio is 15%, with no excess reserves and no cash leakage. First Main Street Bank takes the entire $4,500 in excess reserves that resulted from the open-market purchase by the Fed and creates a loan for Poornima in a form of a new checkable deposit with a balance of $4,500. The money supply now is $ Then Poornima writes a check for $4,500 to Shen, who immediately deposits the full amount into his checking account at Second Republic Bank. Complete the following table to show the effect of Shen's deposit on the Second Republic Bank's balance sheet. Reserves Loans Assets Liabilities Checkable Deposits Now Second Republic Bank uses the entire $3,825 in excess reserves that resulted from Shen's deposit to create a loan for Valerie in the form of a checkable deposit. The money supply now is $ Suppose Second Republic Bank lends all its new excess reserves to Antonio, who writes a check to Caroline, who deposits the money into her account at Third Fidelity Bank. Then Third Fidelity lends all its new excess reserves to Dmitri. Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $4,500 injection into the money supply results in an overall increase of $ deposits. Therefore, the total money supply increases to $ in checkable
Suppose again that checkable deposits started off at $1,300,000 in First Main Street Bank, the required reserve ratio is 15%, with no excess reserves and no cash leakage. First Main Street Bank takes the entire $4,500 in excess reserves that resulted from the open-market purchase by the Fed and creates a loan for Poornima in a form of a new checkable deposit with a balance of $4,500. The money supply now is $ Then Poornima writes a check for $4,500 to Shen, who immediately deposits the full amount into his checking account at Second Republic Bank. Complete the following table to show the effect of Shen's deposit on the Second Republic Bank's balance sheet. Reserves Loans Assets Liabilities Checkable Deposits Now Second Republic Bank uses the entire $3,825 in excess reserves that resulted from Shen's deposit to create a loan for Valerie in the form of a checkable deposit. The money supply now is $ Suppose Second Republic Bank lends all its new excess reserves to Antonio, who writes a check to Caroline, who deposits the money into her account at Third Fidelity Bank. Then Third Fidelity lends all its new excess reserves to Dmitri. Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $4,500 injection into the money supply results in an overall increase of $ deposits. Therefore, the total money supply increases to $ in checkable
Chapter1: Making Economics Decisions
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Transcribed Image Text:Suppose again that checkable deposits started off at $1,300,000 in First Main Street Bank, the required reserve ratio is 15%, with no excess reserves
and no cash leakage.
First Main Street Bank takes the entire $4,500 in excess reserves that resulted from the open-market purchase by the Fed and creates a loan for
Poornima in a form of a new checkable deposit with a balance of $4,500.
The money supply now is $
Then Poornima writes a check for $4,500 to Shen, who immediately deposits the full amount into his checking account at Second Republic Bank.
Complete the following table to show the effect of Shen's deposit on the Second Republic Bank's balance sheet.
Reserves
Loans
Assets
Liabilities
Checkable Deposits
Now Second Republic Bank uses the entire $3,825 in excess reserves that resulted from Shen's deposit to create a loan for Valerie in the form of a
checkable deposit.
The money supply now is $
Suppose Second Republic Bank lends all its new excess reserves to Antonio, who writes a check to Caroline, who deposits the money into her account
at Third Fidelity Bank. Then Third Fidelity lends all its new excess reserves to Dmitri. Assume this process continues, with each successive loan
deposited into a checking account and no banks keeping any excess reserves.
Under these assumptions, the $4,500 injection into the money supply results in an overall increase of $
deposits. Therefore, the total money supply increases to $
in checkable
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