Suppose there are $1000 of reserves in the banking system. Assume that banks are required to hold

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Suppose there are $1000 of reserves in the banking system. Assume that banks are required to hold 5% of their deposits as required reserves. Assume further, that banks wish to hold zero excess reserves.

a. What is the total amount of deposits in the banking system?

b. If banks decided to hold reserves in excess of those required what would happen to the money multiplier and the money supply? Why?

c. If households decided not to deposit all their money in the bank but to keep some of it in the form of cash outside of the banking system

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Macroeconomics Principles Applications And Tools

ISBN: 9780134089034

7th Edition

Authors: Arthur O Sullivan, Steven M. Sheffrin, Stephen J. Perez

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Posted Date: Mar 06, 2024 12:26 AM

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Suppose there are $1000 of reserves in the banking system. Assume that banks are required to hold

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a To find the total amount of deposits in the banking system we first need to determine the amount o... View the full answer

Macroeconomics Principles Applications And Tools

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