Question
Consider an economy with only two non-identical banks, called Bank One and Bank Two. In addition to this information, members of the public in this
Consider an economy with only two non-identical banks, called Bank One and Bank Two. In addition to this information, members of the public in this economy hold $6000 in cash, and there are no travelers' checks.
Partial balance sheet information for each bank is given below:
Bank One
- Cash in bank $8000
- Equity (net worth) $3500
- US government bonds $1800
- Total savings deposits $12,000
- Deposit in the Federal Reserve $10,000
- Total checking deposits $60,000
Bank Two:
- US government bonds $1200
- Total checking deposits $40,000
- Cash in bank $5000
- Deposit in the Fed $6000
- Equity $2200
- Total savings deposits $10,000
A. Calculate this economy's monetary base by combining actual and potential reserves.
B. Calculate this economy's M1 money supply using the simplified definition.
C. Calculate the excess reserves for Bank Two ONLY
D. Calculate this economy's desired excess reserves ratio er. Be sure to use information from both banks
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