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6. Initially, Wolverine Town Bank holds $4000 worth of checking (or demand) deposits, $1000 of reserves, and $3000 of loans. The reserve requirement is 20%.
6. Initially, Wolverine Town Bank holds $4000 worth of checking (or demand) deposits, $1000 of reserves, and $3000 of loans. The reserve requirement is 20%. Recall, *held by the public MO = Cash* + Reserves M1 = Total Deposits + Cash* a. Construct a T-account for Wolverine Town Bank. What is the bank's current reserve ratio? What bank's current excess reserve ratio? b. Happy Jack, the town crier, holds the only currency held by the public in the economy. This currency amounts to $500, which he keeps in his wallet. What is MO and M1? C. How large are the excess reserves of Wolverine Town Bank? Assuming Happy Jack keeps his $500 in his wallet, what is the maximum amount of M1 that could exist? (Hint: The excess reserves get loaned out in the form of cash to another person. Then this person will deposit this cash into another bank, so that this cash is subject to the money multiplier] 6. Initially, Wolverine Town Bank holds $4000 worth of checking (or demand) deposits, $1000 of reserves, and $3000 of loans. The reserve requirement is 20%. Recall, *held by the public MO = Cash* + Reserves M1 = Total Deposits + Cash* a. Construct a T-account for Wolverine Town Bank. What is the bank's current reserve ratio? What bank's current excess reserve ratio? b. Happy Jack, the town crier, holds the only currency held by the public in the economy. This currency amounts to $500, which he keeps in his wallet. What is MO and M1? C. How large are the excess reserves of Wolverine Town Bank? Assuming Happy Jack keeps his $500 in his wallet, what is the maximum amount of M1 that could exist? (Hint: The excess reserves get loaned out in the form of cash to another person. Then this person will deposit this cash into another bank, so that this cash is subject to the money multiplier]
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