The purpose of this exercise is to show what happens to the maximum money-creating ability of the

banking system when the Fed

lowers the reserve requirement

. Assume the Fed's reserve requirement is

1%. Use the balance sheet in question 6.

Must write out the mathematical formulas and show your calculations

a.

The simple

money multiplier

equals _______________.

Formula:

b.

The banking system has

excess reserves

of $_______________.

Formula (write out formula #1a):

Formula (write out formula #1b):

c.

Loans and the money supply can be expanded by a maximum of $_______________.