Homework Answers
1) In the fractional reserve banking system, the reserve ration is defined as the percentage of total deposits which banks keep in reserve. The bank can keep reserve in terms of cash in vault or in terms of deposits in Fedeal Reserve. Reserves is the ratio of reserves to the total amount of deposits. Here,
Reserve ratio = 25%
2) The money multiplier is the amount of money that banks generate with each dollar of reserves.
Monry multiplier = 1 / Reequired Reserve Ratio = 1 / 0.25 = 4
3) If people deposits all their cash in the bank,
Reserve ratio = 25% * 100% = 25%
The money multiplier = 1 / 0.25 = 4
3) If people deposits 2/3 their cash in the bank,
Reserve ratio = 25% * (2/3) = 16.67%
The money multiplier = 1 / 0.1667 = 6
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need an answer to question 5
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to keep the money supply at its original level, does it culate, in dollars, how much the central bank . Explain how banks create money 5. What are the various ways in which the Federal 6. As a Case Study in the chapter discusses, the Reserve can influence the money supply? money supply fell from 1929 to 1933 because Why might a banking crisis lead to a fall in...
d. $200 reserve ratio is 5 percent and the bank has $1,000 in deposits. Its reserves amount to S5. S50. c. $95. d. $950 Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10 percent. If you deposit $9,000 into First Jayhawk Bank, a. First Jayhawk's required reserves increase by $900. b. First Jayhawk will be able to lend out $8,100 c. First Jayhawk's assets and liabilities both will increase by...
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