Assume Chobot First National Bank is fully loaned up and that the reserve requirement is 20%. Mikey
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Question:
Assume Chobot First National Bank is fully loaned up and that the reserve requirement is 20%. Mikey deposits $1,000 into the bank.
- Calculate the impact of this deposit on the M1 measure of the money supply. (Calculate means show your work.)
- Explain two limitations of the money creation process.
- Suppose the reserve requirement is lowered to 10% instead of 20%. Explain how the reduction in the reserve requirement affects the total money supply and how much money the bank can create using the new reserve requirement if Mikey deposits $1,000 into the bank.
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