Question

Can someone help me solve this question and show all work

2. Bank's Balance Sheets – Suppose the required reserve ratio is 10% and assume that all banks are profit- maximizer and lend their deposits accordingly. The Federal Reserve purchases $100 worth of Treasury securities from Bank A. There are other households/persons in the economy as well. There are There are other banks, namely Bank B, Bank C, and so on. (a) Out of this $100, how much can Bank A lend? Depict the changes to Bank A's balance sheet. (b) Briefly explain the changes to other banks' balance sheets afterwards. (C) How much does the deposit increase in the entire banking system? (d) How much has the money supply increased in the entire economy?

Answer 1

Answer 2 (Parta reserve ratio=10% = Fed resene= 100 0 As reserve ratio is coy.of loo is to lo - co so 40$ can be used to lend to Bank A Bank À Balance sheet - Assets liabilites Loans : 40$ security : Sloo reserves: 10$ anned with C ---Samscanner

Part B Assets. I Liabilities Deposits : 90 $ Loans : 81 $ Reserves: 9 $ 10%) - Creserve ratio is part c Deposit multiplier = LX OR la Scanned with CamScanner

loo XL ___ 01 = 1000 the deposit in the economy has increased by doo = 1000 Part D Money supply on the SUR DIY In now looo he economy rom 100 money multiplier = t x MB lerr = I x 100 Qwoo = looo lored suplita by sino only in the economy 3 has increase a raScanned-th- CamScanner