Question
Suppose the following conditions describe the current state of the United States economy. Real gross domestic product is growing at the rate of 3 percent.
Suppose the following conditions describe the current state of the United States economy.
- Real gross domestic product is growing at the rate of 3 percent.
- The inflation rate is 2 percent.
- The unemployment rate is 9 percent.
A) The following is the balance sheet for a bank in this economy. Assume the bank is loaned up.
Assets Liabilities+equity
$20 million reserves $100 million deposits
60$ million bonds $30 owner's equity
50$ million loans
What percentage is the reserve requirement?
B)The Fed conducts open market operations and buys $30 million in bonds from the bank. Fill in the blanks on the updated balance sheet:
Assets Liabilities+equity
$_________ million reserves $100 million deposits
$_________ million bonds $30 owner's equity
$_________ million loans
C)What is the maximum amount that this bank by itself can increase the money supply?
D) What is the maximum amount that the entire banking system can increase the money supply?
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