Reserves = R, Deposits = D, Cash = C Money Supply (MS) = D + C required reserve ratio = rrr % Monetary Base (MB) = R + C Deposit Multiplier = D / R = 1 + rrr Money Multiplier = MS / MB = (D + C) + (R + C) Typical "textbook" example (starting conditions): R = D = 0, rrr = 20%, C = 100. R D R D R D C C C Table 1 Table 2 Table 3 1 a) complete Table 1. b) what are the initial sizes for MB? C) MS? Next, people open accounts and deposit all cash into the banking system. 2 a) update Table 2. b) what are now the sizes for MB? c) MS? d) in Table 2's R, what are the amounts of Required Reserves, and e) Excess Reserves? In the textbook example, all excess reserves become loans 3 a) What is the maximum size of the first loan? If the entire first loan is deposited (in a single bank - - not shown), how much of it is b) now Required Reserves? and c) Excess Reserves? 4 a) If all subsequent loans follow the process in #3, update Table 3 with the ending R, D, and C. b) what is the $ increase in deposits from Table 1? c) from Table 2? d) in Table 3's R: what are the amounts of Required Reserves, and e) Excess Reserves? 5ab. Show the Deposit Multiplier and the Money Multiplier are (for now) the same value (fill in formulas and results) D/R = MS/MB = Back to the starting conditions (Table 1), but this time $10 of currency is kept as cash. R D R D R D C L: C L: C Table 4 Table 5 Table 6 6. Complete a) Table 4: initial deposits, b) Table 5: first loan = $_ , and c) Table 6: end-status. 7ab. Show the Deposit Multiplier and the Money Multiplier are different values (fill in formulas and results) D/R = MS/MB = Greater realism: banking system now shows securities (S) and loans (L) as assets; rrr = 20%. R: 30 S: 40 L: 30 D: 100 R S L D C: 100 C Table 7 Table 8 8 a) excess reserves in Table 7's R = Excess reserves - loans, all loans become deposits, so b) initial changes (+ or -) to L= , D= & excess R= c) update Table 8's end-status. 9ab. Show the Deposit Multiplier and the Money Multiplier are different values (fill in formulas and results) D/R = MS/MB =