homework5spring2006

homework5spring2006 - Economics 102 Spring 2006 Homework #5...

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Economics 102 Spring 2006 Homework #5 Due: April 27, 2006 1. Suppose Jeremy deposits $100,000 in Wisconsin Bank, and Jason borrows $75,000 from Wisconsin Bank to buy a car at the Ford dealership. Suppose the required reserve ratio for all banks (set by the Fed) is 25%. The Ford dealership deposits the money from Jason’s car purchase in Madison Credit Union. Assume that there are no currency drains. (a) Draw T-accounts for Wisconsin Bank, and Madison Credit Union depicting the changes in assets and liabilities for these two institutions. Wisconsin Bank‘s Balance Sheet Changes in Assets Changes in Liabilities Reserves: Demand Deposits: Loans: Madison Credit Union’s Balance Sheet Changes in Assets Changes in Liabilities Reserves: Demand Deposits: Loans: (b) What is the amount of required reserves held by Wisconsin Bank due to Jeremy’s deposit? What is the amount of required reserves held by Madison Credit Union after the Ford dealership’s deposit? Why are these amounts different?
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This note was uploaded on 08/08/2008 for the course ECON 102 taught by Professor Drozd during the Spring '08 term at Wisconsin.

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homework5spring2006 - Economics 102 Spring 2006 Homework #5...

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