Economics: Principles & Policy
14th Edition
ISBN: 9781337696326
Author: William J. Baumol; Alan S. Blinder; John L. Solow
Publisher: Cengage Learning
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Question
Chapter 28, Problem 3TY
a.
To determine
Impact of $100 withdrawal from checking account to buy concert tickets.
b.
To determine
Impact of depositing $100 into the bank.
c.
To determine
Impact of $500 withdrawal from one bank and depositing it in another.
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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.
Suppose you found Rs. 2000 that was stored under your grandmother's mattress and you decided to deposit this money in a Bank of India. If the desired reserve ratio were 20 percent and all excess reserves were lent out.
a) Calculate the money supply created by this deposition in the economy?b) Following a new deposit of Rs. 2000, what is the reserve requirement of the commercial bank?c) Suppose all the banks in the banking system collectively have Rs.20 million in cash reserves and have a desired reserve ratio of 20 percent, the maximum amount of demand deposits the banking system can support is?
Chapter 28 Solutions
Economics: Principles & Policy
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