Model of money (deposit) creation a. We now look at how the banks create money (deposit) following an open market operation. Suppose the Fed purchases a $500 worth of securities from bank 1. Using the assumptions (depositors don't hold on to cash and banks don't hold excess reserves), fill in the t-accounts for the four banks below. Only draw the final t-accounts. Assume a required reserve ratio of 10%. b. Find the money (deposit) multiplier. What does the money multiplier mean? Assuming the above process continues forever (i.e. borrower from bank 4 deposits the money into bank 5, borrower from bank 5 deposits the money into bank 6 and so on), what is the total amount of new deposit created in the economy? c. Suppose unlike in the model, the banks do hold on to some excess reserve (which is a more realistic scenario). Will the total amount of new deposit be as high as what you found in (b)? Explain. d. Again, unlike in the model, suppose the borrower from bank 1 just holds on to the loan amount in the form of cash and this doesn't get deposited in bank 2. What is the total amount of new deposit created in the economy? Model of money (deposit) creation a. We now look at how the banks create money (deposit) following an open market operation. Suppose the Fed purchases a $500 worth of securities from bank 1. Using the assumptions (depositors don't hold on to cash and banks don't hold excess reserves), fill in the t-accounts for the four banks below. Only draw the final t-accounts. Assume a required reserve ratio of 10%. b. Find the money (deposit) multiplier. What does the money multiplier mean? Assuming the above process continues forever (i.e. borrower from bank 4 deposits the money into bank 5, borrower from bank 5 deposits the money into bank 6 and so on), what is the total amount of new deposit created in the economy? c. Suppose unlike in the model, the banks do hold on to some excess reserve (which is a more realistic scenario). Will the total amount of new deposit be as high as what you found in (b)? Explain. d. Again, unlike in the model, suppose the borrower from bank 1 just holds on to the loan amount in the form of cash and this doesn't get deposited in bank 2. What is the total amount of new deposit created in the economy