SU_ECO2072_W4_A2_DUNN_K

SU_ECO2072_W4_A2_DUNN_K - Balance Sheet for Ecoville...

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Unformatted text preview: Balance Sheet for Ecoville International Bank ASSETS Cash Loans LIABILITIES $33,000 Demand Deposits $99,000 66,000 If the bank is required to keep 10% of the deposits as rese 10% of $99,000 = $9,900 Makes loans up to $99,000 - $9,900 = $89,100 Since the bank already made loans worth $66,000, with no worth $23,100. If the FED reduces the required reserve ratio to 8%, then b $99,000 - $7,920 = $91,080. The bank made loans worth $ Balance sheet for Ecoville International Assets Cash Loans $7, 920 DD $91,080 Liabilities $99,000 If the bank loans out the amount allowed, then the money given that r is 5% the money multiplier is 1/ 0.05 = 20. the A contractionary policy is a type of policy used as a tool by government to reduce the money supply and ultimately th the government can step in with a contractionary policy to are increased, the banks have to loan out less money. Ther Mankiw, N. G. (01/2014). Principles of Economics, 7e, 7th E p 10% of the deposits as reserves then; $9,900 = $89,100 loans worth $66,000, with no change in the required reserve ratio, the bank can make additional loans ed reserve ratio to 8%, then bank keeps 8% of $99,000 = $7,920 as reserves. The loans would be worth he bank made loans worth $66,000, so it can still loan out $91,080 - $66,000 = $25,080. unt allowed, then the money supply would increase by $25,080. Money multiplier is given by 1/r, multiplier is 1/ 0.05 = 20. the increase in the money supply is 20 * 25,080 = 501,600. pe of policy used as a tool by the central bank to slow down the economy. This policy is implemented by a oney supply and ultimately the spending in a country. Since the banks are required to keep a reserve of cash, ith a contractionary policy to try to slow down the economy, incase of inflation. If the reserve requirements to loan out less money. Therefore lowering the money supply. ciples of Economics, 7e, 7th Edition. [VitalSource Bookshelf Online]. Retrieved from university.edu/#/books/9781305217171/ ...
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