Name Answer each of the following questions relating to fractional reserve banking and the expansion of the money supply Assume that the Bank of Macronomia currently has exactly $50,000 in excess reserves and $10,000 in required reserves Assume that the reserve requirement is 20 in Macronomia If Mr Martin deposits $5,000 into this bank, what is the updated total amount of new loans Bank of Macronomia can loan out (5 points 3 for correct calculation 2 for showing your work) Again assume that the Bank of Macronomia currently has exactly $50,000 in excess reserves and $10,000 in required reserves This time assume that the reserve requirement is 10 in Macronomia If Mr Martin deposits $10,000 into this bank, what is the maximum total amount of new money that might be created as a result of this one deposit (5 points 3 for correct calculation 2 for showing your work) Now assume that the current bank balance sheet for the Bank of Macronomia is shown below Assets Liabilities Reserves $4,000 Deposits $20,000 Loans $16,000 Assume that the reserve requirement is currently 20 What is the maximum amount total amount of new money that might be created if Mrs Gonzalez deposits $1000 in the bank (5 points 3 for correct calculation 2 for showing your work) Now assume that instead of the maximum amount of money creation you calculated in 3 above, only about half of that amount truly ended up being created added to the money supply in Macronomia as a result of Mrs Gonzalezs deposit Explain two reasons why this might be the case (5 points total)

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Name: ________________________ Answer each of the following questions relating to fractional reserve banking and the expansion of the money supply. Assume that the Bank of

Name: ________________________

Answer each of the following questions relating to fractional reserve banking and the expansion of the money supply.

Assume that the Bank of Macronomia currently has exactly $50,000 in excess reserves and $10,000 in required reserves. Assume that the reserve requirement is 20% in Macronomia. If Mr. Martin deposits $5,000 into this bank, what is the updated total amount of new loans Bank of Macronomia can loan out? (5 points: 3 for correct calculation; 2 for showing your work).

Again assume that the Bank of Macronomia currently has exactly $50,000 in excess reserves and $10,000 in required reserves. This time assume that the reserve requirement is 10% in Macronomia. If Mr. Martin deposits $10,000 into this bank, what is the maximum total amount of new money that might be created as a result of this one deposit? (5 points: 3 for correct calculation; 2 for showing your work).

Now assume that the current bank balance sheet for the Bank of Macronomia is shown below:

Assets	Liabilities
Reserves: $4,000	Deposits: $20,000
Loans: $16,000

Assume that the reserve requirement is currently 20%. What is the maximum amount total amount of new money that might be created if Mrs. Gonzalez deposits $1000 in the bank? (5 points: 3 for correct calculation; 2 for showing your work).

Now assume that instead of the maximum amount of money creation you calculated in #3 above, only about half of that amount truly ended up being created/added to the money supply in Macronomia as a result of Mrs. Gonzalezs deposit. Explain two reasons why this might be the case. (5 points total).