1. Money is printed by the U.S. Treasury Department and yet economists claim that banks create money. Fully explain how banks create money. 2. Why is the reserve requirement the key variable to determine how much money a bank is able to create? 3. Why is the assumption that banks lend out all excess reserves usually a valid assumption? 4. In the last decade, banks have tended to keep excess reserves for the first time in decades. How would this change in behavior affect the value of the money multiplier? Explain. 5. In addition to holding excess reserves, identify a second "leakage" that could cause the multiplier to decrease. Part 2 - Practice- Use the balance sheet for Leon's Bank below to answer the following questions. Assets Liabilities Required reserves $1,000 Demand deposits $10,000 Excess reserves $0 Owner's equity $10,000 Customer loans $8,000 Government securities (bonds) $7,000 Building and fixtures $4,000 6. Calculate the required reserve ratio. Explain how you got your answer. 7. Suppose that an individual deposits $5,000 of cash into her checking account. What is the immediate effect of the cash deposit on the M1 measure of the money supply? Explain. 8. What is the dollar value of the bank's required reserves after the $5,000 deposit in question #7? Explain. 9. What is the dollar value of the bank's excess reserves after the $5,000 deposit in question #7? Explain. 10. Calculate the maximum amount that the money supply can change as a result of the $5,000 deposit in question #7. Show your work