Suppose that we are a bank with $3,000 worth of deposits. We operate in an economy with a mandated reserve ratio of 12%. Suppose that the bank is keeping $450 in reserves currently, loaning out the rest of its deposits. 9. Is the bank meeting its reserve requirements? Does it have excess reserves? How much more or less must the bank lend out to just exactly meet its reserve requirements? 10. If the bank takes the action you prescribe in your answer to Question 9, how much will the total amount of deposits in the whole banking system change? Assume no cash drain. 3 11. Suppose instead that there is cash drain of 8%. Now, how much would this same action prescribed in your answer to Question 9 change the total amount of deposits in the whole banking system?

ENGR.ECONOMIC ANALYSIS
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Chapter1: Making Economics Decisions
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Suppose that we are a bank with $3,000 worth of deposits. We operate in an economy with a
mandated reserve ratio of 12%. Suppose that the bank is keeping $450 in reserves currently,
loaning out the rest of its deposits.
9. Is the bank meeting its reserve requirements? Does it have excess reserves? How much
more or less must the bank lend out to just exactly meet its reserve requirements?
10. If the bank takes the action you prescribe in your answer to Question 9, how much will
the total amount of deposits in the whole banking system change? Assume no cash
drain.
11. Suppose instead that there is cash drain of 8%. Now, how much would this same action
prescribed in your answer to Question 9 change the total amount of deposits in the
whole banking system?
3.
Transcribed Image Text:Suppose that we are a bank with $3,000 worth of deposits. We operate in an economy with a mandated reserve ratio of 12%. Suppose that the bank is keeping $450 in reserves currently, loaning out the rest of its deposits. 9. Is the bank meeting its reserve requirements? Does it have excess reserves? How much more or less must the bank lend out to just exactly meet its reserve requirements? 10. If the bank takes the action you prescribe in your answer to Question 9, how much will the total amount of deposits in the whole banking system change? Assume no cash drain. 11. Suppose instead that there is cash drain of 8%. Now, how much would this same action prescribed in your answer to Question 9 change the total amount of deposits in the whole banking system? 3.
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