Question
Assume that the Bank of Ecoville has the following balance sheet and the Fed has a 10% reserve requirement in place: Balance Sheet for Ecoville
Assume that the Bank of Ecoville has the following balance sheet and the Fed has a 10% reserve requirement in place:
Balance Sheet for Ecoville International Bank
ASSETS
LIABILITIES
Cash
$33,000
Demand Deposits
$99,000
Loans
66,000
Now assume that the Fed lowers the reserve requirement to 8%.
- What is the maximum amount of new loans that this bank can make?
- Assume that the bank makes these loans. What will the new balance sheet look like?
- By how much has the money supply increased or decreased?
- If the money multiplier is 5, how much money will ultimately be created by this event?
- If the Fed wanted to implement a contractionary monetary policy using reserve requirement, how would that work?
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The Legal Environment of Business A Critical Thinking Approach
Authors: Nancy K Kubasek, Bartley A Brennan, M Neil Browne
6th Edition
978-0132666688, 132666685, 132664844, 978-0132664844
