Unformatted text preview: (c) The maximum amount of new money that the bank can create. Also show reserves (R), deposits (D) and Loans by using T account .  .A L . R 200 D 200 Loan 1,800 ∆D 1,800 2,000 2,000 New money = ∆D = 1,800 2. Suppose in an economy T account of the banks is showing as in T. On the other hand, households and firms hold $20 in currency and $5 in coins. Calculate (a) the monetary base and (b) the quantity of money in this economy. Show your calculation explicitly.  All banks .A L . R $60 D $300 (a) Monetary base = Federal reserve notes + coins + bank’s reserves = 20 + 5 + 60 = 85. (b) Quantity of money = currency held outside banks + deposits = 20 + 5 + 300 = 325. 1...
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- Monetary Policy, Federal Reserve System, Fractional-reserve banking, .A L.