7. The money creation process Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 20%. Eric, a Southeast Mutual Bank customer, deposits $1,500,000 into his checking account at the local branch. Complete the following table to reect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities V V V V Complete the following table to reect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities v v V V Building and furniture Deposits Loans _ _ . . _ e to show the effect of a new depos:t on excess and required reserves when the required reserve ratio IS 20%. Net worth tive, be sure to enter the value as negative number. Reserves hange in Excess Reserves Change in Required Reserves Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities V V V V $300,000 $1,200,000 $1,500,000 Complete the following table to show ew deposit an excess and required reserves when the required reserve ratio is 20%. $3,600,000 Hint: If the change is negative, be su value as negative number. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities Building and furniture Deposits Loans Complete the following table to show the effect of a new depo ed reserves when the required reserve ratio is 20%. Net worth Hint: If the change is negative, be sure to enter the value as Reserves Amount Deposited Change in Excess Reserves Ch ervesComplete the following table to reect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities V V V V $300,000 $1,200,000 $1,500,000 Complete the following table to show the effect of a new deposit on excess and required reserve ired reserve ratio is 20%. $3,600,000 Hint: If the change is negative, be sure to enter the value as negative number. Complete the following table to show the effect of a new deposit an 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) (Dollars) (Dollars) Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Cho, who immediately uses the funds to write a check to Bob. Bob deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to Kenji, who writes a check to Ginny, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess reserves to Lucia in turn. Fill in the following table to show the effect 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 Walls Fergo Bank PJMorton Bank Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,500,000 injection into the money supply results in an overall increase of v in demand deposits. Increase in Deposits Increase in Required Reserves Increase in Loans (Dollars) (Dollars) (Dollars) Southeast Mutual Bank $750,000 Walls Fergo Bank PJMorton Bank $6,000,000 $7,500,000 Assume this process continues, with each successive loan deposited into a checking account a -eping any excess reserves. Under these assumptions, the $1,500,000 injection into the money supply results in an overall increase of V in demand deposits