Controlling the supply of money, Macroeconomics

When the reserve requirement changes, which of the following will change in the total banking system?  (Answer change or No Change)

Transaction Deposits

Total Reserves

Required Reserves

Excess Reserves

Lending Capacity

Suppose that a lottery winner deposits $20 million in cash into her transactions account at the Bank of America (B of A). Assume a reserve requirement of 25 percent and no excess reserves in the banking system prior to this deposit.

(a) Use step 1 in the T accounts below to show how her deposit affects the balance sheet of B of A.

(b) Has the money supply been changed by her deposit?

(c) Use step 2 below to show the changes at B of A after the bank fully uses its new lending capacity?

(d) Has the money supply changed in step2?

(e) In step 3 the new borrower(s) writes a check for the amount of the loan in step 2. That check is deposited at another bank and B of A pays the other bank when the check clears. What does the B of A balance sheet look like now?

(f) After the entire banking system uses the lending capacity of the initial ($20 million) deposit, by how much will the following have changed?

Posted Date: 3/16/2013 6:18:32 AM | Location : United States







Related Discussions:- Controlling the supply of money, Assignment Help, Ask Question on Controlling the supply of money, Get Answer, Expert's Help, Controlling the supply of money Discussions

Write discussion on Controlling the supply of money
Your posts are moderated
Related Questions
Q. What is Demand for money? Demand for money The demand for money depends negatively on R and positively on the Yin the IS-LM model As fo


Derivation of Indifference Curve: Consider any commodity bundle denoted by point A in the above figure which consist x 0 1  and x 0 2 amount of good I and good II respectiv

The aim of this paper is to observe and interpret the correlations between oil price changes, and changes to key macroeconomic indicators. From this we will be able to observe if t

Q. Construction of real gross domestic product ? To be able to make reasonable comparisons of GDP over time, we should adjust for inflation. For instance, if prices are doubled

Q. Important points about the classic model? The most important points about the classic model are as following:  Monetary and fiscal policy can't affect the GDP or unem

Regional Trading Arrangements: You have seen in earlier Units that India has been playing an active role in WTO discussions. While Hong Kong WTO Ministerial has saved and kept


Q. How much money can banks create? Does that mean that banks can create an unlimited amount of money? No the answer is no - it would require them to lend an unlimited amount o

7 people have jobs, 3 want to work but are not, and there are 20 adults. What is the participation rate?