5. The moneylr creation process Suppose First Main Street Bank, Second Republic BankJr and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 10%. The Bank of Canada buys a government bond worth $500,000 from Antonio, a client of First Main Street Bank. He deposits the moneyr into his chequing account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's Taccount (before the bank makes any new loans). Assets Liabilities v v v v Complete the following table to Show the eli'ect of a new deposit on excess and required reserves when the required reserve ratio is 10%. Hint: If the change is negative, be sure to enter the value as a negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) Now, suppose First Main Street Bank loans out all of its new excess reserves to Valerie, who immediately uses the funds to write a cheque to Shen. Shen deposits the funds immediatelyr into his chequing account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Antonio, who writes a cheque to Caroline, who deposits the moneyr into her account at Third Fidelity Bank. Third Fidelityr lends out all of its new EXCESS reserves tD Frances 85 well. 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) Second Republic Bank E E E Third Fidelitv Bank E E E Assume this process continues, with each successive loan deposited into a chequing account and no banks keeping any excess reserves. Under these assumptions, the $500,000 injection into the money supply results in an overall increase of V in demand deposits. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any Assets Liabilities Building and furniture Deposits Loans Co le to show the effect of a new deposit on excess and required reserves when the required re Net worth Hi ative, be sure to enter the value as a negative number. Reserves hange in Excess Reserves Change in Required Reserves (Dollars) (Dollars) "Dollars)following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loa Assets Liabilities $50,000 $450,000 $500,000 following table to show new deposit on excess and required reserves when the required reserve ra $1,100,000 change is negative, be su value as a negative number. eposited Change in Excess Reserves |Change in Required Reservesing table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Building and furniture Deposits Loans ing table to show the effect of a new depo ed reserves when the required reserve ratio is 10%. Net worth is negative, be sure to enter the value as Reserves ed Change in Excess Reserves Ch rves (Dollars) (Dollars)ect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Liabilities $50,000 $450,000 $500,000 w the effect of a new deposit on excess and required reserves uired reserve ratio is 10%. $1,100,000 sure to enter the value as a negative number. n Excess Reserves Change in Required Reserves (Dollars) (Dollars)Increase in Required Reserves Increase in Loans (Dollars) (Dollars) $500,000 $4,500,000 $5,000,000 e loan deposited into a chequing account keeping any excess reserves. Under these supply results in an overall increase of in demand deposits