Creation of money by chartered banks

Hypothesis: The desired (mandatory) reserve rate is 10% and the bank's initial balance sheet is:

Active

Loans: $900

Total reserve at the central bank:$100

Passive:

Deposits: $1000

The bank receives a new deposit of $100 bills.

a)Show the bank's balance sheet right after receiving the deposit (Assumption: the bank wants to keep only the exact amount of reserve requirement at the central bank)

b)What is the total change in deposits and the value of money supply creation?

c)It is assumed that all deposits created will be made in this same bank (this is the only bank in the economy). What will the bank's balance sheet be?

Answer rating: 100% (QA)

a After receiving the new deposit of 100 bills the banks balance sheet would be as follows Assets Lo... View the full answer