QUESTION 1 The balance sheet of the only bank inasimple economy is shown below LIABILITIES AND CAPITAL ASSETS Reserves Cheokable Deposits: 5,000 Loans and Secunbes 4.000 Total Assets 6,000 Total Liabilities & Cocitsl 8.000 If cash the hands ofthe non-bank publie i; $3,000, the Money Supply 8000 Do not use dollar signs, decimal points, or commas) QUESTION 2 Continuing ith the previous problem, suppose people deposi: 1,000 of their cash into checking accounts. In the balanoe sheet below, enter the new totals in all of the accounts, immediately follawing the transaction, before the bank does any new lending. Do not use dollar signs. commas, or decimal points ASSFTS Reserve 1500 Checkable Deposits Co0D Loans and Secuties: 4500 1000 Total Assets: QUESTION 3 Continuing with the previous problem, suppose the reserve requirement (rr) is 10%. Immediately following the S 1.000 deposit, the bank has actual reserves to have-000 1500 and the minimum mount of reserves it's required so it has excess reserves Do not use dollar signs. decimal QUESTION 4 As a result of the S 1.000 deposit, the initial change in Reserves of the banking system-11000 the Enitial change in Excess Reserves 900 and the money mulripler Assuming the reserve requirement is 10%, all excess reserves are loaned out, and all loan proceeds get re-deposited into the banking system) (Do not use dolar signs, commas or decimal points) QUESTION 5 Using your answers to the previous problem, apply the equations shown on the powerpoint about How Banks Create Money to answer the folowing questions, assuming a reserve requirement of 10%. After the bank has exxpanded its landing as much as possible so that no exoess reserves remain in the banking system, the Ultimate Change in Deposits will- the Ultimate change in Lending wil . and the Uttmate changethe Money Supply wil Do not use dollar signs, decimal points, or commas.) QUESTION 6 Continuing with the same scenano, show how the balance sheet of all banks combined will ulsimately look ater lending has expanded to the point where Checkable Deposits have reached their maximum value. To do this, refer back to the original balance sheet in Question 1lft a balance ln an aooount has onanged 24 a result of the expansion of lending-the value you need 10 enter in the balance snat balow is equal to the onginal value plustne change in that value. For example, Loans will certainly expand. So the number you need to enter in the Loans account below is the original amount of Loans of 34,800 plusthe Ultimate change in Lendingthst you computed in the question before this one. (Do not use dollar signs. commas. or decimal points.) ESERVES 1,500 Assets: otal Liabities and Capital: QUESTION 7 Continuing with the same ecample, use your answers from the previous problem to fill in the blanks below. Originally, the Money Supply consisted of $3,000 cash S6,000 deposits-8,000. But after peaple deposited 1,000 of their cash into the bank and the bank expanded its lending to the mazimum extent possible. the Money Supply consisted of $2,000 in cash+$ decimal points.) in deposits for a total money supply of S (Do not use dollar signs, commas, or Comparing the original money supply of $8.000 with the money supply you computed above. the change in the money supply was equal to
