Banking and the Expansion of the Money Supply

Question 1

A bank decides to increase its holding of deposits in reserve, above the required rate. How will this action affect the expansion of the money supply?

ANo impact on the growth potential of the money supply?the behavior of a single bank is irrelevant to the aggregate economy.

BDecrease the growth potential of the money supply?increasing the reserve requirement lowers the money multiplier.

CDecrease the growth potential of the money supply?holding more cash in reserve means less money will be lent to borrowers.

DIncrease the growth potential of the money supply?increasing the reserve requirement increases the money multiplier.

EIncrease the growth potential of the money supply?holding more cash in reserve means more money will be lent to borrowers.

Question 2

A bank has the following assets and liabilities:

Assets Liabilities $50,000 in loans $60,000 in demand deposits $3,000 in required reserves $9,000 in excess reservesAssets Liabilities $50,000 in loans $60,000 in demand deposits $3,000 in required reserves $9,000 in excess reserves