Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Pleasantville...

 

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Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Pleasantville are exactly in compliance with the 5 percent requirement. Further assume that people hold only deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank of Pleasantville decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase? a. $10,833.33. b. $13,000. c. $10,000. d. $8,333.33. Bank of Pleasantville Assets Reserves Loans $3,000 47,000 Liabilities Deposits $50,000 Assume the Fed's reserve requirement is 5 percent and all banks besides the Bank of Pleasantville are exactly in compliance with the 5 percent requirement. Further assume that people hold only deposits and no currency. Starting from the situation as depicted by the T-account, if the Bank of Pleasantville decides to make new loans so as to end up with no excess reserves, then by how much does the money supply eventually increase? a. $10,833.33. b. $13,000. c. $10,000. d. $8,333.33. Bank of Pleasantville Assets Reserves Loans $3,000 47,000 Liabilities Deposits $50,000

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The money supply increases by the reciprocal of the ... View the full answer