Question: The table below is the combined balance sheet for all the banks in a banking system. Each bank has a target reserve ratio of 5%.
The table below is the combined balance sheet for all the banks in a banking system. Each bank has a target reserve ratio of 5%.
| Assets | (1) | (2) | Liabilities / Equity | (1) | (2) | ||
| Reserves | $200 | $ | $ | Demand deposits | $3,000 | $ | $ |
| Loans | 1,800 | Shareholders equity | 600 | ||||
| Securities | 1,300 | ||||||
| Fixed assets | 300 | ||||||
| Total | $3,600 | Total | $3,600 |
a. Fill in the blanks in columns (1) reflecting the complete effect of all excess reserves being loaned out. b. The maximum possible increase in the money supply is $ . c. Returning to the original balance sheet, if the target reserve ratio changes to 10%, the quantity of loans the system be forced to call in will be $ . Write in the figures in columns (2) that show this process completed.
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