Assets Reserves Loans Securities Land Liabilities & Net Worth 2500 Demand 5500 Deposits 10,000 2000 Net Worth 3000 3000 1) If the reserve requirement is 10 %, how much can this bank safely loan out? 2) If the FED is interested in slowing down the economy, what open market operation should the FED conduct? 3) Why would this bank elect to hold securities or land instead of loans? 4) What are two reasons (called leakages) that would keep the money supply from reaching its maximum change from a new loan? Assets Liabilities & Net Worth Reserves 4500 Loans 7500 Demand Deposits 12000 Securities 2000 Net Worth 3000 Land 1000 1) If the reserve requirement is 25%, how much can this bank safely loan out? 2) If the FED is interested in stimulating the economy, what open market operation should the FED conduct? What effect does this action have on the Federal Funds Rate? 3) What is the value of the money multiplier? 4) If the bank extends a loan by your answer in #1, what is the max change in money supply by the loan