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Q5. Money Supply (15 pts) In each of the parts below, be sure to explain your answers, Ryan Cozzens withdraws $400 from his checking account
Q5. Money Supply (15 pts) In each of the parts below, be sure to explain your answers, Ryan Cozzens withdraws $400 from his checking account at the local bank and keeps it in his wallet. (a) How will the withdrawal change the T-account (assets and liabilities) of the local bank and the money supply? (b) If the bank maintains a reserve ratio of 10%, how will it respond to the withdrawal if it needs to comply with the reserve requirement? How much do they need to add to their cash reserves? (c) Suppose the bank raises reserves by calling in some of its loans. What will be the effect on overall bank deposits? (d) If every time a bank decreases its loans, overall bank deposits fall by the amount of the loan, by how much will the money supply in the economy contract in response to Ryan's withdrawal of $4002 (e) Had the reserve ratio been 20%, by how much would the money supply have contracted in response to a withdrawal of $400
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