2. While Bob was walking in the park, he found a $ 100 bill. Not finding the own

Question

2.While Bob was walking in the park, he found a $ 100 bill. Not finding the owner, he decided to deposit it in his checking account. The banks have no excess reserves and required reserve ratio is 25 %

a. How did it change M1 initially?

b.How much money can his bank lend out initially?

c. How much total money supply will change eventually in the whole banking system?

While Bob was walking in the park, he found a $ 100 bill. Not finding the owner, he decided to deposit it in his checking account. The banks have no excess reserves and required reserve ratio is 25 % How did it change M1 initially? How much money can his bank lend out initially? How much total money supply will change eventually in the whole banking system?

Explanation / Answer

a).M1 is increased by $100

b). initially the bank will lend $75

c).total money supply will be changed by 100/0.25

= 400

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