1. Using the terms Demand Deposit, Legal Reserve, and Excess Reserve compose a sentence to describe the role of Third National Bank in the money creation process.
2. Mrs. Jones decides to flip her mattress one day and finds $1000 in the process. She decides to take that $1000 to the Third National Bank and makes a deposit. The Required Reserve Ratio from the Federal Reserve Bank is 20%. Explain the amount of new money that can be created by Third National Bank, solely, after the Jones deposit.
3. Explain why the Jones deposit can lead to a greater increase in the money supply, considering the entire network of banks, than what can happen at the Third National Bank. Keeping in mid that the reserve requirement is 20%, and banks wish to lend all excess reserves, how much money can be created for the money supply from the initial $1000 deposit?
4. Discus two situations that can occur to reduce the growth of money supply in this process.
5. Explain the net export effect in relation to an easy money policy. How does the net export effect differ in an easy money policy compared to a fiscal policy designed to increase demand?