6. (Mishkin 17.18) If the Fed lends five banks a total of $100 million but depos

Question

6. (Mishkin 17.18) If the Fed lends five banks a total of $100 million but depositors withdraw $50 million and hold it as currency, what happens to reserves and the monetary base? Use T- accounts to explain your answer 7. (Mishkin 17.21) If the Fed buys $1 million of bonds from the First National Bank, but an additional 10% of any deposit is held as excess reserves, what is the total increase in checkable deposits? (Hint: Use T-accounts to show what happens at each step of the multiple expansion process.) Assume that the required reserve ratio is 10%.

Explanation / Answer

6) When the fed lends five banks a total of $100 million but depositor withdraw $50 million and hold it as currency , then the reserves will be reduced by the amount of depositor withdraw and the monetary base will remain the same. because monetary base is defined as the money that is either circulated in the hand of the public as a cash or in the commerial bank .

7 -) please upload it again ( its against chegg policy)

Assets Amount Liabilites Amount Reserves 50 million Deposits 100 million Withdrawl 50 million

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