Macroeconomics
10th Edition
ISBN: 9781319105990
Author: Mankiw, N. Gregory.
Publisher: Worth Publishers,
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Question
Chapter 4, Problem 3QQ
To determine
The system of fractional reserve banking.
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Suppose the reserve requirement is currently 10%.
a Assume First Bank has deposits of $90 Million. Calculate the reserves for First Bank.
$_______________ million.
b. At the end of the day, First bank has $8 million of reserves. Will be a borrower or lender in the federal funds market?
First bank will __________________ reserves of $____________ million in the federal funds market.
An increase in the interest paid on excess reserves will encourage banks to hold _______ excess reserves and make _______ loans.
a. more; more
b. less; fewer
c. more; fewer
d. less; more
Humongous Bank is the only bank in the economy.The people in this economy have $20 million in money,and they deposit all their money in Humongous Bank.a. Humongous Bank decides on a policy of holding100% reserves. Draw a T-account for the bank.b. Humongous Bank is required to hold 5% of itsexisting $20 million as reserves, and to loan outthe rest. Draw a T-account for the bank after ithas made its first round of loans.c. Assume that Humongous bank is part of amultibank system. How much will money supplyincrease with that original $19 million loan?
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