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Unformatted text preview: checking account at Bank A assuming that (i) all banks lend all excess reserves, (ii) the required reserve ratio is still 0.20, and (iii) all loan proceeds are re-deposited at another bank? Assets Liabilities and Equity + $5,000,000 cash +$5,000,000 demand deposits- $5,000,000 cash + $1,000,000 required reserves + $4,000,000 excess reserves-$4,000,000 excess reserves +$4,000,000 loans 4. Calculate the increase in the money supply if the first step is Company XYZ depositing $5 million cash at Bank A assuming that banks lend all excess reserves and that the required reserve ratio is still 0.20. [(1/rrr) – 1]*(Bond Purchase) = [(1/0.20) – 1]*($5 million) = [5 – 1]*($5 million) = (4)*($5 million) = $20 million...
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- Spring '10
- Monetary Policy, Federal Reserve System, Fractional-reserve banking, $1,000,000, excess reserves, $4,000,000