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Unformatted text preview: 184ffc5deff2376d9e6a1e2458c58d02ffea1135.doc 1 1. This illustrates the store of value function of money. 2. Recall: reserve ratio = reserves/deposits If the bank has $10,000 in deposits and $8,000 in loans then reserves are ($10,000 - $8,000 = $2,000) The reserve ratio is therefore $2,000/$10,000 = 0.20 = 20 percent 3. When the reserve requirement is less than 100 percent, banks can lend out deposits. The money they lend out is redeposited. In this way, deposits can be greater than reserves. Since deposits are greater under fractional-reserve banking and since deposits are part of the money supply, the money supply will be greater under fractional-reserve banking. 4. (1/.20) $100 = $500. 5. First National Bank of Me Assets Liabilities Reserves$800 Deposits $5,000 Loans $4,200 6. A "lender of last resort" is a lender to those who cannot borrow anywhere else. The Bank A "lender of last resort" is a lender to those who cannot borrow anywhere else....
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- Spring '08