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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 they fear 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 returns (4) Required Reserves (5) Excess Reserves (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 (7) Money.Creating Potential of Banking System $ 30,000 5,000 $ 2,000 4,000 5,000 6.000 (6) Money-Creating Potential of Single Bank (5) $ 3.000 1.000 0 -1,000 $ 3,000 1,000 0 -1,000 0 -3,333 Instructions: In part a, enter your answer as a whole number. In part b, round your answers to 2 decimal places. In part center your answer as an absolute value a. By how many percentage points does the Fed need to increase the reserve ratio to eliminate one-third of the excess reserves? | percentage points b. What is the size of the monetary multiplier before the change in the reserve tatlo? What is the size after the change? c. By how much would banks' lending potential decline as a result of the increase in the reserve ratio? $
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