Question

Q1

Suppose a banking system has $ 140,000 of checkable deposits and actual reserves of $ 15,000. If the reserve ratio is 9% Required Reserves in the banking system are equal to: $ ____.

(Put only numbers in your answer; do not put a dollar sign in your answer.)

Your Answer:

Q2

Suppose a banking system has $ 130,000 of checkable deposits and actual reserves of $ 21,000. If the reserve ratio is 6% Excess Reserves in the banking system are equal to: $ ____.

(Put only numbers in your answer; do not put a dollar sign in your answer.)

Your Answer:

Q3

Suppose a banking system has $ 135,000 of checkable deposits and actual reserves of $ 18,000. If the reserve ratio is 8% the banking system can expand the supply of money by a maximum of $ ____.

(Put only numbers in your answer; do not put a dollar sign in your answer.)

Answer 1

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Answer

Q1. Required reserves in the system are = Checkable deposits * reserve ratio
= 140,000 * 9%
= 12600 $

Q2. Required reserves = 130000*6%
= 7800 $
Actual reserves are 21000 $
Excess reserves = Actual - Required reserves
= 21000-7800
= 13200 $

Q3. Maximum change in money supply = Money multiplier * Excess reserves
Actual reserves = 18000 $
Required reserves = 135000*8%
=10,800 $
Excess reserves = 18000-10800 = 7200 $
Bank will lend out its excess reserves . Initial change in money supply = 7200 $
Overall change in supply will be = 7200 * 1/8%
= 7200*100/8
=90,000 $