View the step-by-step solution to:

# Problem [10 points] Consider an economy where the Fed enforces a minimum reservefdeposit ratio of 25 percent. In this economy; the money supply is...

The pic on the top is the answer for the pic below it. Can you tell me why Bank A lends out had changed from 600 to 720 and why person 2's keep had changed from 200 to 80?

Problem [10 points] Consider an economy where the Fed enforces a minimum reservefdeposit ratio of 25
percent. In this economy; the money supply is created as follows: The Fed buys bonds from Person 1 for \$1000. Person 1 keeps \$200 in his pocket and deposits \$800 at bank ﬁt.
Bank A lends out \$000 to Person 2 and keeps \$200 as reserves.
Person 2 keeps \$200 at home under the mattress and deposits \$400 at Bank El.
Elank El keeps \$100 in its vaults as reserves and lends \$300 to Person 3.
Person 3 decides to keep the \$300 entirely in o_1rrency. |:l |:l |:l|:l|:l|:l a) What are the monetary base; the money supply and the money multiplier? b) How would the problem change if the minimum reservefdeposit ratio was 10 percent? ﬁssuming that banks would lend as much as they legally could and that
Persons 1 and 2 would hold the same amounts of oirrency as before, find the monetary base, the money supply and the money multiplier.

(bl The Fed buys bonds from Person 1 for \$1000. Person 1 keeps \$200 in his pocket and deposits \$800 at hankﬁi. Elankﬁi lends out \$220 to Person 2 and keeps \$80 as reserves. |:l|:l|:l|:l Person 2 keeps \$200 at home under the mattress and deposits \$520 at Bank
E. [I Elank El keeps \$52 in its vaults as reserves and lends \$488 to Person 3. I] Person 3 decides to keep the \$488 entirelj,r in currency.

The figures change because the bank is allowed to lend out as much... View the full answer

### Why Join Course Hero?

Course Hero has all the homework and study help you need to succeed! We’ve got course-specific notes, study guides, and practice tests along with expert tutors.

### -

Educational Resources
• ### -

Study Documents

Find the best study resources around, tagged to your specific courses. Share your own to gain free Course Hero access.

Browse Documents