5. The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zer

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5 The Money Creation Process Suppose First Main Street Bank Second Republic Bank And Third Fidelity Bank All Have Zer 1 (53.68 KiB) Viewed 15 times

5. The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. Hubert, a client of First Main Street Bank, deposits $1,500,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves (Dollars) Change in Required Reserves (Dollars) (Dollars) 1,500,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Eileen, who immediately uses the funds to write a check to Clancy. Clancy deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Manuel, who writes a check to Kate, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess reserves to Poornima in turn. Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar. Increase in Deposits Increase in Required Reserves (Dollars) (Dollars) Increase in Loans (Dollars) First Main Street Bank Second Republic Bank Third Fidelity Bank Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,500,000 injection into the money supply results in an overall increase of in demand deposits.
Co Hi Building and furniture Deposits Loans Net worth Reserves (Dollars) 1,500,000 Liabilities e to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. tive, be sure to enter the value as negative number. hange in Excess Reserves Change in Required Reserves (Dollars) (Dollars) Assets
Liabilities new deposit on excess and required reserves when the required reserve ratio is 20%. value as negative number. Change in Required Reserves (Dollars) Assets $300,000 $1,200,000 $1,500,000 Complete the following table to show $3,600,000 Hint: If the change is negative, be su Amount Deposited Change in Excess Reserves (Dollars) (Dollars) 1,500,000
Assets Complete the following table to show the effect of a new depo Hint: If the change is negative, be sure to enter the value as Amount Deposited Change in Excess Reserves Ch (Dollars) (Dollars) 1,500,000 Liabilities Building and furniture Deposits Loans Net worth Reserves (Dollars) ed reserves when the required reserve ratio is 20%. erves
Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 1,500,000 $300,000 $1,200,000 $1,500,000 $3,600,000 uired reserve ratio is 20%.
Second Republic Bank Third Fidelity Bank Assume this process continues, with each successive loan deposited into a checking account al assumptions, the $1,500,000 injection into the money supply results in an overall increase of $750,000 $6,000,000 $7,500,000 Jeeping any excess reserves. Under these in demand deposits.