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Refer to the table below and assume that the Fed's reserve ratio is 10 percent and the economy is in a severe recession. Also suppose
Refer to the table below and assume that the Fed's reserve ratio is 10 percent and the economy is in a severe recession. Also suppose that the commercial banks are hoarding all excess reserves (not lending them out) because of their fear of loan defaults. Finally, suppose that the Fed is highly concerned that the banks will suddenly lend out these excess reserves and possibly contribute to Inflation once the economy begins to recover and confidence is restored. (1) Reserve Ratio, % (1) 10 (2) 20 (3) 25 (4) 30 (2) Checkable Deposits $20,000 20,000 20,000 20,000 (3) Actual Reserves $5,000 5,000 5,000 5,000 Required Reserves $2,000 4,000 5,000 6,000 (5) Excess Reserves $3,000 1,000 0 (6) (7) Money-Creating Potential of Money-Creating Potential Single Bank. (5) of Banking System $3,000 $30,000 1,000 5,000 0 -1.000 -3,333 -1,000 a. By how many percentage points would the Fed need to increase the reserve ratio to eliminate one-third of the excess reserves? b. What would be the size of the monetary multiplier before the change in the reserve ratio? Instructions: Round your answers to 2 decimal places. b. What would be the size of the monetary multiplier before the change in the reserve ratio? Instructions: Round your answers to 2 decimal places. What would be the size after the change? c. By how much would the lending potential of the banks decline as a result of the increase in the reserve ratio? Instructions: Enter your answer as an absolute value
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