Assume the Federal Reserve has a 25% reserve requirement. A new-to-the-system deposit of $100,000 is placed into a bank. What will be the change in the overall banking system’s financial position when the deposit is first made? What will be the theoretical ending position of the banking system assuming excess reserves are eventually lowered to $0? (Be sure to utilize the reserve multiplier in your answer and explain the importance of legal reserves, required reserves, and excess reserves.)

Answer rating: 100% (QA)

Answer When the first deposit is made the amount of excess reserve loan amount will change The t... View the full answer