Question: \"Let’s assume that Jon has $1,000 in currency that he has been carryi
ID: 1117373 • Letter: Q
Question
Question:
"Let’s assume that Jon has $1,000 in currency that he has been carrying around. Jon decides this is unsafe and deposits the full $1000 into his checking account at The River Bank. By how much has total M1 in the country changed by this transaction alone?"
. Last National Bank . Assets Liabilities and Capital . Required Reserves $30,000 Checkable Deposits $200,000 . Excess Reserves $0 Net Capital $10,000 . Loans ? . Total reserves: . Required Reserve Ratio: . . . . The River Bank(marketing slogan: “we specialize in liquidity”) . Assets Liabilities and Capital . Deposits at The Fed $40,000 Checkable Deposits $500,000 . Cash on Hand (Vault cash) $10,000 Securities Sold/Issued $10,000 . Securities Owned $150,000 Net Capital $10,000 . Loans $300,000 . Other Long-term Assets $20,000 . Total Reserves On Hand: . Required Reserves: . Excess Reserves:
Explanation / Answer
Correct Answer: Last National Bank
Total reserve = 30000 + 0 = $30000
Required reserve ratio = required reserve / checkable deposit = 30000/200000 = 15%
Loans = 210000 – 30000 = $180000
Correct Answer: The River Bank
Total reserve on hand = 40000 + 10000 = $50000
Required reserve = deposit at the Fed = $40000
Excess reserve = 50000 – 40000 = $10000
Regarding the question of Jon,
M1 money will not change when $1000 of the cash is deposited into the river bank as checkable deposit.
M1 money is the sum of cash in circulation and checkable deposit. Hence, shift of $1000 from cash to the checkable deposit in the river bank, will not change the M1 money.
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