Economics:
10th Edition
ISBN: 9781285859460
Author: BOYES, William
Publisher: Cengage Learning
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Question
Chapter 12, Problem 7E
To determine
(a)
To compute:
The maximum loan if the bank maintains a reserve requirement of
To determine
(b)
To compute:
The maximum amount by which money supply can be increased.
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Students have asked these similar questions
Which of the following activities will affect a bank’s required reserves? why?
a. The local Girl Scout troop collects coins and currency to buy a new camping stove. The troop deposits $250 in coins and opens a small-time deposit.
b. You decide to move $200 from your MMDA to your NOW account.
c. You sell your car to the teller at your bank for $5,000. The teller pays with a check drawn on the bank, and you deposit the check immediately into your checking account at the bank
The task I am struggling with:
Tracy Williams deposits $500 that was in her sock drawer into a checking account at the local bank. The reserve ratio is 10%.
a) how dies the deposit initially change the T-account of the local bank? How does it change the money supply?
b) If the bank maintains a reserve ratio of 10%, how will it respond to the new deposit?
c) if every time the bank makes a loan, the loan results in a new checkable bank deposit in a different bank equal to the amount of the loan, by how much could the total money supply in the economy expand in response to Tracy´s initial cash deposit of $500?
Thank you very much for your help.
A chartered bank has $1 million in deposits and $40,000 in desired reserves. Its excess reserves are initially zero.
a. The reserve ratio in the banking system is .......%.
b. If a further $100,000 is deposited in this bank then the bank's desired reserves increase by $.......while the bank's excess reserves increase by $........
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Similar questions
- Your friend Sarah borrows money from her bank to buy a car. Explain to her the transactions in which the bank sets up the loan, and why the loan involves an increase in the money supply.arrow_forwardYou just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 20%, how much will your deposit increase the total value of checkable bank deposits? If the reserve requirement is 8%, how much will your deposit increase the total value of checkable deposits? Increasing the reserve requirement decreases the money supply. %24 %24arrow_forwardHow is a bank able to lend more money than it has in reserves?arrow_forward
- The banking system has $5,000 in reserve, $45,000 in loans, and $50,000 in deposits. Currently the reserve requirement is 10%. If the Fed lowers reserve requirement to 5%, the banking system converts 75% excess reserves to loans, but borrowers return only 60% of these funds to the banking system as deposits. What is the maximum amount of loans the banking system could make?arrow_forwardSay that First Commercial Bank has reserves of $100, loans at $400 and checkable deposits of $500. The required reserve ratio is 10%. If the bank has a deposit outflow of $40, is the bank in violation of the required reserve ratio? What is the maximum amount of deposit outflow the bank can sustain without violating the ratio?arrow_forwardIf the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank A. must increase its required reserves by $10. B. will initially see its total reserves increase by $10.50. C. will be able to make new loans up to a maximum of $9.50. D. All of the above are correct.arrow_forward
- Below is a short version of the balance sheet at Wells Fargo. Assume this bank has a 15% reserve requirement. Wells Fargo Assets Liabilities Total Reserves $250,000 Deposits $100,000 1. What is the maximum this bank can lend out? $ 2. Mr. Smithers decides to withdraw $25,000 from his checking account here after which the bank will now make $45,000 in loans and purchase $14,000 in securities from the Fed. After all these transactions take place, answer the following questions. (Enter your response rounded to the nearest whole number). a. The bank now has Total Reserves in the amount of $☐ b. The bank now has Required Reserves in the amount of $ c. The bank now has Excess Reserves in the amount of $ d. The bank is now limited to making additional loans up to the amount of $ e. The value of the simple money multiplier is (round to just 1 decimal) f. Should this bank lend its entire remaining reserves, the banking system can see an increase in the money supply of $arrow_forwardIf a bank has $10 million in total deposits from customers, holds $3 million in reserves, and has a legal reserve requirement of 20% imposed by the Fed, which statement is TRUE? The bank's actual reserve ratio is 30%, and the bank is not fully loaned-up. The bank's actual reserve ratio is 30%, and the bank is fully loaned-up. The bank's actual reserve ratio is 20%, and the bank is fully loaned-up. The bank's actual reserve ratio is 20%, and the bank is not fully loaned-up.arrow_forwardFind the amount of money that would be created in the banking system because of the money multiplier if the required reserve ratio is 14%, and a bank that had been holding $1,000 as excess reserves decides to loan all this money out.arrow_forward
- If the required reserve ratio is 10 percent and a bank has $1,000 of deposits, then its required reserves are?arrow_forwardWhat types of regulations commercial banks are subject to and why commercial banks are subject to reserve requirement?arrow_forwardBank X has a required reserve ratio of 0.2, total reserves are $70 million, and deposits are $200 million. How much in excess reserves do they have? How much could the money supply increase?arrow_forward
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