ASSETSLIABILITIES & NET WORTH

Actual Reserves20,000Demand Deposits60,000

Required Reserves__________

Excess Reserves__________

Loans40,000

________________________

60,00060,000

A.Given a Reserve Requirement of 20%, what is the Required Reserve for this bank? $____________

What is the Excess Reserve for this bank? S___________

B.How much money can this bank lend?$______________

C.If this money goes through the Banking System, how much does the total money supply increase? $____________

D.IF the Reserve through ___________________ money policy, is lowered to 10%, what is the new Required Reserve?$________________the new Excess Reserve? $_____________

E.NOWmuch can this bank lend? $________________

F.If this money goes through the Banking system, how much does the total money supply increase after the change in the RR?$______________

G.So, through a change from 20% to 10%, the Banking System was able to increase the available supply of money by $_____________

While Jon is walking to school one morning, a helicopter flying overhead drops $300. Not knowing how to return it, Jon keeps the money and deposits it in his bank. (No one in this economy holds cash.) If the bank keeps only 10 % of its money in reserves and is fully loaned out, calculate the following:

a.How much money can the bank now lend out?

b.After this initial transaction, by how much has the money in the economy changed?

c.What's the money multiplier?

d.

How much money will eventually be created by the banking system from Jon's $300?