4 and 5

1. If the Bank of America has lent out all of the money it can give its deposits, then what is its reserve ratio? Reserves/deposits 12,000/240,000=0.05 or 5% 2. Assume that the Bank is holding the required percent of deposits as reserves. Also, Assume all other banks hold only the required percent of deposits as reserves. What is the money multiplier? 1/RR=1/0.05=20 3. If the Fed requires a reserve ratio of 4%, how much in excess reserves does the Bank now hold? Deposits reserves ratio, 240,0000.04=9,600 4. If all banks hold only the required 4 percent of deposits as reserves, then what is the money multiplier? ! 5. Assume that all other banks hold only the required 4 percent of deposits as reserves and that people hold only deposits and no currency. If bank of america decides to hold reserves of 4 percent, by how much would the economy's money supply increase? 1. If the Bank of America has lent out all of the money it can give its deposits, then what is its reserve ratio? Reserves/deposits 12,000/240,000=0.05 or 5% 2. Assume that the Bank is holding the required percent of deposits as reserves. Also, Assume all other banks hold only the required percent of deposits as reserves. What is the money multiplier? 1/RR=1/0.05=20 3. If the Fed requires a reserve ratio of 4%, how much in excess reserves does the Bank now hold? Deposits reserves ratio, 240,0000.04=9,600 4. If all banks hold only the required 4 percent of deposits as reserves, then what is the money multiplier? ! 5. Assume that all other banks hold only the required 4 percent of deposits as reserves and that people hold only deposits and no currency. If bank of america decides to hold reserves of 4 percent, by how much would the economy's money supply increase