Essentials of Economics (MindTap Course List)
8th Edition
ISBN: 9781337091992
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 21, Problem 5PA
To determine
The impact of deposits in the bank on money supply.
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Check out a sample textbook solutionStudents have asked these similar questions
You just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves
and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round
your answers to the nearest dollar.
If the reserve requirement is 20%, how much will your
deposit increase the total value of checkable bank deposits?
If the reserve requirement is 8%, how much will your deposit
increase the total value of checkable deposits?
Increasing the reserve requirement
decreases
the
money supply.
%24
%24
You take $500 that you held as currency and put it into the banking system. The reserve ratio is
equal to 20%.
Calculate the money multiplier.
By how much will increase the total amount of deposits in the banking system?
By how much will increase the money supply?
The task I am struggling with:
Tracy Williams deposits $500 that was in her sock drawer into a checking account at the local bank. The reserve ratio is 10%.
a) how dies the deposit initially change the T-account of the local bank? How does it change the money supply?
b) If the bank maintains a reserve ratio of 10%, how will it respond to the new deposit?
c) if every time the bank makes a loan, the loan results in a new checkable bank deposit in a different bank equal to the amount of the loan, by how much could the total money supply in the economy expand in response to Tracy´s initial cash deposit of $500?
Thank you very much for your help.
Chapter 21 Solutions
Essentials of Economics (MindTap Course List)
Ch. 21.1 - Prob. 1QQCh. 21.2 - Prob. 2QQCh. 21.3 - Prob. 3QQCh. 21.4 - Prob. 4QQCh. 21 - Prob. 1CQQCh. 21 - Prob. 2CQQCh. 21 - Prob. 3CQQCh. 21 - Prob. 4CQQCh. 21 - Prob. 5CQQCh. 21 - Prob. 6CQQ
Ch. 21 - Prob. 1QRCh. 21 - Prob. 2QRCh. 21 - Prob. 3QRCh. 21 - Prob. 4QRCh. 21 - Prob. 5QRCh. 21 - Prob. 6QRCh. 21 - Prob. 7QRCh. 21 - Prob. 8QRCh. 21 - Prob. 9QRCh. 21 - Prob. 10QRCh. 21 - Prob. 1PACh. 21 - Prob. 2PACh. 21 - Prob. 3PACh. 21 - Prob. 4PACh. 21 - Prob. 5PACh. 21 - Prob. 6PACh. 21 - Prob. 7PACh. 21 - Prob. 8PACh. 21 - Prob. 9PACh. 21 - Prob. 10PACh. 21 - Prob. 11PACh. 21 - Prob. 12PA
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Similar questions
- How is the amount of reserves banks hold related to the amount of money the banking system creates?arrow_forwardThe First National Bank of Townville has $125,000 in U.S. government securities, $200,000 in savings accounts, $300,000 in checking accounts, $50,000 in its reserve account at the Fed, $10,000 of currency in its vault, and loans of $250,000. What is the amount of its reserves? Show your calculations.arrow_forwardWhy don’t banks hold 100 percent reserves? How is the amount of reserves banks hold related to the amount of money the banking system creates?arrow_forward
- How is a bank able to lend more money than it has in reserves?arrow_forwardWhat amount of additional money supply can a bank system create if the required reserves rate is 10%, and deposits are $5 million?arrow_forwardWhich of the following activities will affect a bank’s required reserves? why? a. The local Girl Scout troop collects coins and currency to buy a new camping stove. The troop deposits $250 in coins and opens a small-time deposit. b. You decide to move $200 from your MMDA to your NOW account. c. You sell your car to the teller at your bank for $5,000. The teller pays with a check drawn on the bank, and you deposit the check immediately into your checking account at the bankarrow_forward
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