CL6 ECO 3203 - 7 You have looked at round 1 and round 2 of this process Fill in the table to show the next few rounds of the loan process Round New

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Classwork #6 In the bank, deposits are 4000, reserves are 300, bonds are 1000, and loans are 2700. The required reserve ratio is 5%. 1. Set up the balance sheet for the banking system. 2. The Federal Reserve buys $100 of bonds from this bank. Illustrate this transaction on your balance sheet. 3. Excess reserves are _______. 4. The bank can make a new loan of ______. 5. When the new loan is made and the funds are removed from the bank, how does this affect the balance sheet? Set up a new one below. 6. When the new loan is made, spent, and redeposited in the bank, a new loan of _____ can be made.
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Unformatted text preview: 7. You have looked at round 1 and round 2 of this process. Fill in the table to show the next few rounds of the loan process. Round New Loan Total New Deposits Round 1 Round 2 Round 3 Round 4 Round 5 8. If this process continues, the bank holds no excess reserves, and the public does not change their currency holdings, how much new money can be created in total? 9. Illustrate the final bank balance sheet. 10. Considering the effects of the bond purchase, what do you expect to happen to the following variables? Answer up or down. Bond price Interest rate Money supply...
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This note was uploaded on 11/08/2011 for the course ECO 3203 taught by Professor Yang during the Fall '10 term at University of Central Florida.

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