Question: Question 4 Consider a new deposit of CAD3,000 to the Canadian banking system. Suppose that all commercial banks have a target reserve ratio of 20

Question 4

Consider a new deposit of CAD3,000 to the Canadian banking system. Suppose that all commercial banks have a target reserve ratio of 20 percent and there is no cash drain. The following table shows how deposits, reserves, and loans change as the new deposit permits the banks to “create” money.

Round Deposits Reserves Loans

First $3,000 ? ?

Second ? ? ?

Third ? ? ?

Fourth ? ? ?

4.1 Complete the table

4.2 Calculate the total change in deposits because of the fourth round circulations stemming from the single new deposit of CAD3,000.

4.3 Calculate the eventual total change in reserves and the eventual total change in loans.

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