If all banks operate under a full reserve system, how much money is created by the banking system with a $100 deposit of gold? What would happen under a fractional reserve system where the reserve ratio chosen by all banks was 5%? Draw a model for the market of loanable funds. Suppose the equilibrium interest rate is 10 percent. Now, show the effects of a law that states no funds can be lent at a rate greater than 5 percent.

If all banks operate under a full reserve system, how much money is created by the banking system with a $100 deposit of gold? What would happen under a fractional reserve system where the reserve ratio chosen by all banks was 5%? Draw a model for the market of loanable funds. Suppose the equilibrium interest rate is 10 percent. Now, show the effects of a law that states no funds can be lent at a rate greater than 5 percent.

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter19: Money Creation

Section: Chapter Questions

Problem 6SQP

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