Describe the condition of the commercial banking system

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Assume that the following data describe the condition of the commercial banking system:

Total reserves:                  $ 80 billion

Transactions deposits:   $700 billion

Cash held by public:       $300 billion

Reserve requirement: 0.10

(a) How large is the money supply (M1)?

(b) Are the banks fully utilizing their lending capacity?

(c) What would happen to the money supply initially if the public deposited another $20 billion in cash in transactions accounts?

(d) What would the lending capacity of the banking system be after such a portfolio switch?

(e) How large would the money supply be if the banks fully utilized their lending capacity?

( f ) What three steps could the Fed take to offset that potential growth in M1?

Reference no: EM131163290

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