Question
Suppose that we exist in a banking system with a mandated reserve ratio of 12%. Suppose that the banks in this system have no capital
Suppose that we exist in a banking system with a mandated reserve ratio of 12%. Suppose that the banks in this system have no capital themselves ($0) but do still have deposits. Suppose to begin that there is no cash drain (0%) to begin with. 11. Suppose that there is a new deposit into a bank of 100 dollars. How much will this deposit change the total quantity of deposits in this banking system? 12. If the total banking system has $8,000 in deposits across the whole system, then what must have been the initial deposit into this banking system to generate these $8,000 in total deposits? Using the initial quantity of deposits that you calculated in the previous question (Q12), answer the following final two questions: 13. If the Central Bank lowers the reserve ratio from 12% to 10%, how much would this change the quantity of deposits across the total banking system? 14. Suppose that the reserve ratio remains at 10%. If there was also a cash drain of 10%, what would be the quantity of deposits across the total banking system?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started