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1. If the reserve ratio is 20 percent, how much money can be created from $100 of reserves? Show your work.

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Anne Gillian Duero
Anne Gillian DueroLv10
28 Sep 2019

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Related questions

Consider the following simplified balance sheet of a commercial bank:

ASSETS  and LIABILITIES

Vault cash $200 

Deposits $3500

Deposits at the Federal Reserve $300

Loans $3000

1.The required reserve ratio is 10 percent.

Find Actual Reserves $....... , Required Reserves $..... , and Excess Reserves $ ......

2. By how much can this bank increase its loans? $........

3. What is the money (deposit) multiplier equal to?.........

4. By how much can the entire banking system expand their loans? $ .......

5. How much new wealth is directly created from this expansion of deposits?

Assume that the banking system has total reserves of $100 million. Assume also that the reserve requirement for checking deposits is 10 percent and that banks do not hold any excess reserves. There is also no currency held by households.

a) What is the money multiplier? What is the money supply?

b) If the FED raises required reserves to 20 percent of deposits, what are the change in reserves and the change in money supply?

c) Now suppose the FED lowers the requirement from 10 percent to 5 percent, but banks choose to hold another 5 percent of deposits as excess reserves. Why might banks do so? What is the overall change in the money multiplier and the money supply as a result of these actions?

d) If the FED sells $1 million of government bonds, what is the effect on the economy's reserves and money supply? Use 10 percent required reserve ratio.

e) If the FED buys $5 million of government bonds, what is the effect on the economy's reserves and money supply? Use 10 percent required reserve ratio.

The economy of Elmendyn contains 2,000 $1 bills.

a) If people hold all money as currency, what is the money supply?

b) If people hold all money as demand deposits and banks maintain 100 percent reserves, what is the quantity of money?

c) If people hold equal amounts of currency and demand deposits and banks maintain 100 percent reserves, what is the quantity of money?

d) If people hold all money as demand deposits and banks maintain a reserve ratio of 10 percent, what is the quantity of money? If the reserve ratio is 20 percent, what then is the money supply?

e) If people hold equal amounts of currency and demand deposits and banks maintain a reserve ratio of 10 percent, what is the quantity of money?

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