Macro Topic 4.4 Banking and the Money Supply Part 3 - More Practice-Below is the balance sheet for Bank of Merica. Identify the following immediately after Lindsey withdraws $1,000 of cash from the bank. Assets Liabilities Required reserves $1,000 Demand deposits $10,000 Excess reserves $2,000 Owner's equity SO Customer loans $5,000 Government securities (bonds) 11. The Reserve Ratio 12. Government securities 13. Demand deposits 14. Required reserves 15. Excess reserves Part 4 - Even More Practice-Below is the balance sheet for D&J Bank. Identify the change in the following immediately after Jessie deposits $1,000 of cash into the bank. Assets Liabilities Required reserves $1,000 Demand deposits $20,000 Excess reserves Owner's equity $0 Customer loans $19.000 SO 16. The Reserve Ratio 17. Demand deposits 18. Customer loans 19. Required reserves 20. Excess reserves Part 5 - Stretch Your Thinking- Answer the following questions. 21. Explain how fractional reserve banking inherently involves the risk of bank runs. Macro Topic 4.4 Banking and the Money Supply Part 1 - Check Your Understanding- Answer the following questions. 1. Money is printed by the U.S. Treasury Department and yet economists claim that banks create money. Fully explain how banks create money. 2. Why is the reserve requirement the key variable to determine how much money a bank is able to create? 3. Why is the assumption that banks lend out all excess reserves usually a valid assumption? 4. In the last decade, banks have tended to keep excess reserves for the first time in decades. How would this change in behavior affect the value of the money multiplier? Explain. 5. In addition to holding excess reserves, identify a second "leakage that could cause the multiplier to decrease Part 2 - Practice- Use the balance sheet for Leon's Bank below to answer the following questions Assets Liabilities Required reserves $1,000 Demand deposits $10,000 Excess reserves $o Owner's equity $10,000 Customer loans $8,000 Government securities (bonds) $7.000 Building and fixtures $4,000 6. Calculate the required reserve ratio. Explain how you got your answer. 7. Suppose that an individual deposits $5,000 of cash into her checking account. What is the immediate effect of the cash deposit on the M1 measure of the money supply? Explain. 8. What is the dollar value of the bank's required reserves after the $5,000 deposit in question #7? Explain 9. What is the dollar value of the bank's excess reserves after the $5,000 deposit in question #7? Explain 10. Calculate the maximum amount that the money supply can change as a result of the $5,000 deposit in question #7. Show your work Macro Topic 4.4 Banking and the Money Supply Part 3 - More Practice-Below is the balance sheet for Bank of Merica. Identify the following immediately after Lindsey withdraws $1,000 of cash from the bank. Assets Liabilities Required reserves $1,000 Demand deposits $10,000 Excess reserves $2,000 Owner's equity SO Customer loans $5,000 Government securities (bonds) 11. The Reserve Ratio 12. Government securities 13. Demand deposits 14. Required reserves 15. Excess reserves Part 4 - Even More Practice-Below is the balance sheet for D&J Bank. Identify the change in the following immediately after Jessie deposits $1,000 of cash into the bank. Assets Liabilities Required reserves $1,000 Demand deposits $20,000 Excess reserves Owner's equity $0 Customer loans $19.000 SO 16. The Reserve Ratio 17. Demand deposits 18. Customer loans 19. Required reserves 20. Excess reserves Part 5 - Stretch Your Thinking- Answer the following questions. 21. Explain how fractional reserve banking inherently involves the risk of bank runs. Macro Topic 4.4 Banking and the Money Supply Part 1 - Check Your Understanding- Answer the following questions. 1. Money is printed by the U.S. Treasury Department and yet economists claim that banks create money. Fully explain how banks create money. 2. Why is the reserve requirement the key variable to determine how much money a bank is able to create? 3. Why is the assumption that banks lend out all excess reserves usually a valid assumption? 4. In the last decade, banks have tended to keep excess reserves for the first time in decades. How would this change in behavior affect the value of the money multiplier? Explain. 5. In addition to holding excess reserves, identify a second "leakage that could cause the multiplier to decrease Part 2 - Practice- Use the balance sheet for Leon's Bank below to answer the following questions Assets Liabilities Required reserves $1,000 Demand deposits $10,000 Excess reserves $o Owner's equity $10,000 Customer loans $8,000 Government securities (bonds) $7.000 Building and fixtures $4,000 6. Calculate the required reserve ratio. Explain how you got your answer. 7. Suppose that an individual deposits $5,000 of cash into her checking account. What is the immediate effect of the cash deposit on the M1 measure of the money supply? Explain. 8. What is the dollar value of the bank's required reserves after the $5,000 deposit in question #7? Explain 9. What is the dollar value of the bank's excess reserves after the $5,000 deposit in question #7? Explain 10. Calculate the maximum amount that the money supply can change as a result of the $5,000 deposit in question #7. 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