Suppose Bank A, which faces a reserve requirement of 10 percent, receives a $1,000 deposit from a customer.
a. Assuming that it wishes to hold no excess reserves, determine how much the bank should lend. Show your answer on Bank As balance sheet.
b. Assuming that the loan shown in Bank Aâs balance sheet is redeposited in Bank B, show the changes in Bank Bs balance sheet if it lends out the maximum possible.
c. Repeat this process for three additional banks: C, D, and E.
d. Using the simple money multiplier, calculate the total change in the money supply resulting from the $1,000 initial deposit.
e. Assume Banks A, B, C, D, and E each wish to hold 5 percent excess reserves. How would hold this level of excess reserves affect the total change in the money supply?
Suppose Bank A, which faces a reserve requirement of 10 percent, receives a $1,000 deposit from a customer.
a. Assuming that it wishes to hold no excess reserves, determine how much the bank should lend. Show your answer on Bank As balance sheet.
b. Assuming that the loan shown in Bank Aâs balance sheet is redeposited in Bank B, show the changes in Bank Bs balance sheet if it lends out the maximum possible.
c. Repeat this process for three additional banks: C, D, and E.
d. Using the simple money multiplier, calculate the total change in the money supply resulting from the $1,000 initial deposit.
e. Assume Banks A, B, C, D, and E each wish to hold 5 percent excess reserves. How would hold this level of excess reserves affect the total change in the money supply?