5. Multiple-deposit expansion of the money supply Aa Aa Suppose First Main Stree
ID: 1107599 • Letter: 5
Question
5. Multiple-deposit expansion of the money supply Aa Aa Suppose First Main Street Bank, Second Dominion Bank, and Third Rdelity Bank choose to keep 20% of all demand deposits as reserves. Carlos, a dient of First Main Street Bank, suddenly recelves $750,000 from a long-forgotten relative. He deposits the money in his chequing account at First Main Street Bank. On the Assets side of First Main Street Bank's balance sheet (before the bank makes any new loans), th is On the Llabilities side First Main Street Bank's by of First Main Street Bank's balance sheet, this First Main Street Banks by Because the reserve lend by are made). tio is 20%, the $750,000 deposit the amount that First Main Street Bank can and First Main Bank's reserves by (once all new loans Now suppose First Main Street Bank lends out the remainder of the deposit after keeping 20% of it for reserves to Madeline, who immediately uses the funds to write a cheque to Jason. Jason deposits the funds immediately into his chequing account at Second Dominion Bank. Then Second Dominion Bank lends out the remainder of the deposit after keeping 20% of it for reserves to Patrick, who writes a cheque to Caroline, who deposits the money in her account at Third Fidelity Bank. Third Fidelity lends out the remainder of the deposit after keeping 20% of it for reserves as well. Fill in the following table to show the effect of this ongoing chain of events at each of the banks. Enter each answer to the nearest penny. You should have calculated the figures for the first row earler in this probiem.Explanation / Answer
Answer to blank 1: increase
Answer to blank 2: reserves
Answer to blank 3: $750,000
Answer to blank 4: increase
Answer to blank 5: demand deposits
Answer to blank 6: $750,000
Answer to blank 7: increase
Answer to blank 8: $600,000
Answer to blank 9: increase
Answer to blank 10: $150,000
Answer to blank 11: $30,000,000
Answer to blank 12: $37,50,000
Explanation:
Multiplier = 1 / RR = 1 / 0.2 = 5
Overall increase = 5 * $750,000 = $37,50,000
Banking system allows it to create = 37,50,000 - 750,000 = 30,000,000 in lending
Bank Increase in Deposits Increase in RR Increase in Loans First Main street Babk 750000 150000 600000 Second Republic Bank 600000 120000 480000 Third Fidility Bank 480000 96000 384000Related Questions
Hire Me For All Your Tutoring Needs
Integrity-first tutoring: clear explanations, guidance, and feedback.
Drop an Email at
drjack9650@gmail.com
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.