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5. The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is
5. The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presen 20%. Clancy, a Southeast Mutual Bank customer, deposits $1,500,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%.Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Della rs) (Dollars) Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Becky, who immediatelyr uses the funds to write a check to Alex. Alex deposits the funds immediately:r into his checking account at Walls Fergo Bank. 111en Walls Fergo Bank lends out all of its new excess reserves to Hubert, who writes a check to Eileen, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess reserves to Kate in turn. Fill in the following table to show the e'ect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar. Increase in Deposits Increase in Required Reserves Increase in Loans (Dollars) (Dollars) (Dollars) Southeast Mutual Bank E E i:l Walls Fergo Bank E E i:l PJMorton Bank E E i:l Assume this process continues, with each successive loan deposited into a checking account and no banks keeping an'iur excess reserves. Under these assumptions, the $1,500,000 injection into the money:r supph.f results in an overall increase of v in demand deposits.
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