N1

Assume a required reserve ratio of 10 percent. A check for $80,000 is drawn on an account in Bank One and deposited in a demand deposit in Bank Two. 1. How much have the excess reserves of Bank Two increased? 2. How much in the form of new loans is Bank Two now able to extend to borrowers? 3. By how much have reserves of Bank One decreased? 4. By how much have excess reserves of Bank One decreased? 5. The money supply has increased by how much? If the required reserve ratio is 10 percent, what will be the maximum change in the money supply in each of the following situations? 1. Ms. Cruz deposits in Bank Two a check drawn on Bank Three? 2. Ms. Cruz buys a $5000 U.S. government bond from the Fed by drawing on her checking account. 3. Ms. Cruz sells a $10,000 U.S. government bond to the Fed and deposits the $10,000 in Bank Three? 4. Ms. Cruz finds $2,000 in coins and paper currency buried in her backyard and deposits that money in her checking account