Working through a change in the reserve requirement Assume that the following ta

Question

Working through a change in the reserve requirement Assume that the following table portrays the balance sheet of First Southern bank. First Southern's bank reserves are equal to. If the Federal Reserve sets the required ratio to 0.20, First Southern's required reserves would be. Therefore, it would have in excess reserves. If First Southern loaned all of its excess reserves, the maximum amount by which the money supply could subsequently increase is If instead the Fed were to set the required reserve ratio to 0.10, required reserves would be excess reserves would be and the maximum increase in the money supply would be The in the money supply will be smaller if the Fed chooses a required reserve ratio of

Explanation / Answer

First southern bank reserves are equal to 900,000.

If fist reserve ratio is 20%, the reserve ratio amount would be 180,000 n excess of 70,000 for other purposes.

If all the money is loaned, the excess amount to loan would be 70,000 in addition to 500,000.

If reserve ratio is 10%, the reserved amount will be 90,000 and excess amount to loan would be 180,000. The maximum increase to money supply would be 680,000.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.