Question: Suppose that we exist in a banking system with a mandated reserve ratio of 12%. Suppose that the banks in this system have no capital

Suppose that we exist in a banking system with a mandated reserve ratio of 12%. Suppose that the banks in this system have no capital themselves ($0) but do still have deposits. Suppose to begin that there is no cash drain (0%) to begin with. 11. Suppose that there is a new deposit into a bank of 100 dollars. How much will this deposit change the total quantity of deposits in this banking system? 12. If the total banking system has $8,000 in deposits across the whole system, then what must have been the initial deposit into this banking system to generate these $8,000 in total deposits? Using the initial quantity of deposits that you calculated in the previous question (Q12), answer the following final two questions: 13. If the Central Bank lowers the reserve ratio from 12% to 10%, how much would this change the quantity of deposits across the total banking system? 14. Suppose that the reserve ratio remains at 10%. If there was also a cash drain of 10%, what would be the quantity of deposits across the total banking system?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Economics Questions!

Problem 1: Long-Term Growth in the AD-AS Model This will be a graph shifting question, which asks about the intuition of both the AD-AS figures and the I-NS figures, specifically relating them to...

Problem 3: Bank Balances and Deposits [7 Points] Suppose that we exist in a banking system with a mandated reserve ratio of 12%. Suppose that the banks in this system have no capital themselves ($01...

Part 1 [1 point) 0 See Hint Assume that ban ks hold no excess reserves and that all currency is deposited into the banking system. if the required reserve ratio is 10.00%. and the Federal Reserve...

Financing Activity Direct Indire Jim and Mary obtain a mortgage for a new house from their commercial bank Juanita deposits a portion of her pay each month into a savings account Delta Airlines uses...

(a) What is the direct effect (increase / decrease / no change) of each of the following events on MI and M2. No explanation is required. (i) You transfer $1,000 from your cheque account to your...

USE THE CASE STUDY Hamilton's policies induced others to fill out the other major components of a modern American financial system. The BUS prompted state legislatures to charter more banksthere were...

The opportunities and challenges that face the global monetary and capital markets cannot be easily separated. What are your thoughts related to the issues raised in "The Crash" scripts attached and...

Individual banks may well have become so large and interconnected that they simply cannot be allowed to fail. Discussions : (i) measures of systemic risk incorporating the macroeconomic effects of a...

ECN 211 HW 6, 320, 3 The balance sheet for Bank A below shows the effect of a new $50,000 deposit by Mr. Thompson. The $50,000 comes from Mr. Thompson's sale, through his broker, of government bonds...

The following transactions affecting materials occurred in February: Feb. 1 Balance on hand, 1,200 ft @ $2.76, $3,312.00 (plastic tubing, materials ledger account #906). 5 Issued 60 ft to production...

Investment professionals frequently develop concerns that earnings management may be present when they observe that a firm has voluntarily changed its inventory valuation policy from LIFO to FIFO....

A small "friend group" that shares interests and activities on a daily basis is called a:

Question 1 6 3 pts Specialization may not be the best way to deal with today's problems because Today's problems are increasingly complex and rapidly changing Today's problems need us to invent new...

Select a job you are interested in getting. Go online to one or more of the following websites to determine the compensation for the job you want: www.salaryexpert. com, www.indeed.com/salary,...

Have you done a career self-assessment? Was it easy or difficult? Why? Do you believe you could benefit from taking a career test? Why or why not?

From question 6, or based on other sources, select an organization you would like to work for. Research the company and develop some questions in preparation for a job interview.