Question
Creation of money by chartered banks Hypothesis: The desired (mandatory) reserve rate is 10% and the bank's initial balance sheet is: Active Loans: $900 Total
Creation of money by chartered banks
Hypothesis: The desired (mandatory) reserve rate is 10% and the bank's initial balance sheet is:
Active
Loans: $900
Total reserve at the central bank:$100
Passive:
Deposits: $1000
The bank receives a new deposit of $100 bills.
a)Show the bank's balance sheet right after receiving the deposit (Assumption: the bank wants to keep only the exact amount of reserve requirement at the central bank)
b)What is the total change in deposits and the value of money supply creation?
c)It is assumed that all deposits created will be made in this same bank (this is the only bank in the economy). What will the bank's balance sheet be?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
a After receiving the new deposit of 100 bills the banks balance sheet would be as follows Assets Lo...
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Step: 2
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Macroeconomics Canada in the Global Environment
Authors: Michael Parkin, Robin Bade
8th edition
321778103, 978-0321808370, 321808371, 978-0321778109
