GME Bank has hired you to manage the bank's loans. Currently they have $450,000 in checking deposits
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GME Bank has hired you to manage the bank's loans. Currently they have $450,000 in checking deposits and a reserve ratio of 30%. Use the bank balance sheet to answer the questions below.
| Assets | Liabilities and Net Worth | ||
Reserves | 130,000 | Checkable deposits | 450,000 |
Loans | 320,000 | Stock Investment | 220,000 |
Securities | 220,000 |
- What is the value of the money multiplier if all banks lend out the maximum amount allowed?
- Is this bank holding excess reserves, and if yes, how much?
- Explain why the money supply increases when banks make loans.
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