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 Eastern bank. First Eastern's bank reserves are equal to $850,000.00. If the Federal Reserve sets the required reserve ratio to 0.10, First Eastern's required reserves would be. Therefore, it would have in excess reserves. If First Eastern 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 0.05, 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 larger if the Fed chooses a required reserve ratio of.

Explanation / Answer

Required reserves will be .10%of 850000 = 85000. Therefore excess reserves are (850000-85000) = 765000.

Increase in money supply is: (multiplier = 1/rr = 1/.10 = 10 times = 7650000).

If rr = 0.05, required reserves = 42500, excess reserves = 807500, increase in money supply= 16,150,000

The increase in money supply will be larger if fed choose a rr of 0.05.

Related Questions

Navigate

• Browse (All)
• Browse W
• Subjects

---

---

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