9. The money multiplier process Aa Aa Suppose First Main Street Bank, Second Republic Bank, and...

 

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9. The money multiplier process Aa Aa Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. The Federal Reserve buys a government bond worth $1,500,000 from Eric, a client of First Main Street Bank. He deposits the money into his checking account at First Main Street Bank. On the Assets side of First Main Street Bank's balance sheet (before the bank makes any new loans), this by $1,500,000 . On the Liabilities side increases First Main Street Bank's of First Main Street Bank's balance sheet, this reserves increases First Main Street Bank's by $1,500,000 deposits First Main Street Bank's excess Because the required reserve ratio is 20%, the $1,500,000 deposit increases and increases First Main Street Bank's required reserves by reserves by $1,200,000 $300,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Ana, who immediately uses the funds to write a check to Manuel. Manuel deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Robert, who writes a check to Ginny, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess reserves as well. Fill in the following table to show the effecet of this ongoing chain of events at each of the banks. Enter each answer to the nearest penny. Increase in Increase in Increase in Required Reserves Loans Deposits Bank $300,000.00 $240,000.00 $192,000.00 $1,200,000.00 $1,500,000.00 First Main Street Bank $960,000.00 $1,200,000.00 Second Republic Bank $768,000.00 $960,000.00 Third Fidelity Bank Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,500,000 injection into the money supply allows banks to in deposits. $7,500,000 in new loans, resulting in an overall increase of make 9. The money multiplier process Aa Aa Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. The Federal Reserve buys a government bond worth $1,500,000 from Eric, a client of First Main Street Bank. He deposits the money into his checking account at First Main Street Bank. On the Assets side of First Main Street Bank's balance sheet (before the bank makes any new loans), this by $1,500,000 . On the Liabilities side increases First Main Street Bank's of First Main Street Bank's balance sheet, this reserves increases First Main Street Bank's by $1,500,000 deposits First Main Street Bank's excess Because the required reserve ratio is 20%, the $1,500,000 deposit increases and increases First Main Street Bank's required reserves by reserves by $1,200,000 $300,000 Now, suppose First Main Street Bank loans out all of its new excess reserves to Ana, who immediately uses the funds to write a check to Manuel. Manuel deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Robert, who writes a check to Ginny, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess reserves as well. Fill in the following table to show the effecet of this ongoing chain of events at each of the banks. Enter each answer to the nearest penny. Increase in Increase in Increase in Required Reserves Loans Deposits Bank $300,000.00 $240,000.00 $192,000.00 $1,200,000.00 $1,500,000.00 First Main Street Bank $960,000.00 $1,200,000.00 Second Republic Bank $768,000.00 $960,000.00 Third Fidelity Bank Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,500,000 injection into the money supply allows banks to in deposits. $7,500,000 in new loans, resulting in an overall increase of make