CHAPTER 13 & 14 EXERCISE
ASSETS LIABILITIES & NET WORTH
Actual Reserves 20,000 Demand Deposits 60,000
Required Reserves __________
Excess Reserves __________
Loans 40,000
______________ __________
60,000 60,000
A. Given a Reserve Requirement of 20%, what is the Required Reserve for this bank? $____________
What is the Excess Reserve for this bank? S___________
B. How much money can this bank lend? $______________
C. If this money goes through the Banking System, how much does the total money supply increase? $____________
D. IF the Reserve through ___________________ money policy, is lowered to 10%, what is the new Required Reserve? $________________ the new Excess Reserve? $_____________
E. NOW much can this bank lend? $________________
F. If this money goes through the Banking system, how much does the total money supply increase after the change in the RR? $______________
G. So, through a change from 20% to 10%, the Banking System was able to increase the available supply of money by $_____________
While Jon is walking to school one morning, a helicopter flying overhead drops $300. Not knowing how to return it, Jon keeps the money and deposits it in his bank. (No one in this economy holds cash.) If the bank keeps only 10 % of its money in reserves and is fully loaned out, calculate the following:
a. How much money can the bank now lend out?
b. After this initial transaction, by how much has the money in the economy changed?
c. What’s the money multiplier?
d. How much money will eventually be created by the banking system from Jon’s $300?
