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i Suppose again that checkable deposits started off at $1,700,000 in First Main Street Bank, the required reserve ratio is 25%, with no excess reserves and no cash leakage. First Main Street Bank takes the entire $4,500 in excess reserves that resulted from the open-market purchase by the Fed and creates a loan for Kyoko in a form of a new checkable deposit with a balance of $4,500. The money supply now is $18,000 Then Kyoko writes a check for $4,500 to Musashi, who immediately deposits the full amount into his checking account at Second Republic Bank. Complete the following table to show the effect of Musashi's deposit on the Second Republic Bank's balance sheet. Assets Liabilities Reserves $4,500 Checkable Deposits ? Loans G- Now Second Republic Bank uses the entire $3,375 in excess reserves that resulted from Musashi's deposit to create a loan for Rina in the form of a checkable deposit. The money supply now is $ Suppose Second Republic Bank lends all its new excess reserves to Sean, who writes a check to Yvette, who deposits the money into her account at Third Fidelity Bank. Then Third Fidelity lends all its new excess reserves to Bob. Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves.

i Suppose again that checkable deposits started off at $1,700,000 in First Main Street Bank, the required reserve ratio is 25%, with no excess reserves and no cash leakage. First Main Street Bank takes the entire $4,500 in excess reserves that resulted from the open-market purchase by the Fed and creates a loan for Kyoko in a form of a new checkable deposit with a balance of $4,500. The money supply now is $18,000 Then Kyoko writes a check for $4,500 to Musashi, who immediately deposits the full amount into his checking account at Second Republic Bank. Complete the following table to show the effect of Musashi's deposit on the Second Republic Bank's balance sheet. Assets Liabilities Reserves $4,500 Checkable Deposits ? Loans G- Now Second Republic Bank uses the entire $3,375 in excess reserves that resulted from Musashi's deposit to create a loan for Rina in the form of a checkable deposit. The money supply now is $ Suppose Second Republic Bank lends all its new excess reserves to Sean, who writes a check to Yvette, who deposits the money into her account at Third Fidelity Bank. Then Third Fidelity lends all its new excess reserves to Bob. Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves.

Economics: Private and Public Choice (MindTap Course List)
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter13: Money And The Banking System
Section: Chapter Questions
Problem 18CQ
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i Suppose again that checkable deposits started off at $1,700,000 in First Main Street Bank, the required reserve ratio is 25%, with no excess reserves and no cash leakage. First Main Street Bank takes the entire $4,500 in excess reserves that resulted from the open-market purchase by the Fed and creates a loan for Kyoko in a form of a new checkable deposit with a balance of $4,500. The money supply now is $18,000 Then Kyoko writes a check for $4,500 to Musashi, who immediately deposits the full amount into his checking account at Second Republic Bank. Complete the following table to show the effect of Musashi's deposit on the Second Republic Bank's balance sheet. Assets Liabilities Reserves $4,500 Checkable Deposits ? Loans G- Now Second Republic Bank uses the entire $3,375 in excess reserves that resulted from Musashi's deposit to create a loan for Rina in the form of a checkable deposit. The money supply now is $ Suppose Second Republic Bank lends all its new excess reserves to Sean, who writes a check to Yvette, who deposits the money into her account at Third Fidelity Bank. Then Third Fidelity lends all its new excess reserves to Bob. Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves.
Transcribed Image Text:i Suppose again that checkable deposits started off at $1,700,000 in First Main Street Bank, the required reserve ratio is 25%, with no excess reserves and no cash leakage. First Main Street Bank takes the entire $4,500 in excess reserves that resulted from the open-market purchase by the Fed and creates a loan for Kyoko in a form of a new checkable deposit with a balance of $4,500. The money supply now is $18,000 Then Kyoko writes a check for $4,500 to Musashi, who immediately deposits the full amount into his checking account at Second Republic Bank. Complete the following table to show the effect of Musashi's deposit on the Second Republic Bank's balance sheet. Assets Liabilities Reserves $4,500 Checkable Deposits ? Loans G- Now Second Republic Bank uses the entire $3,375 in excess reserves that resulted from Musashi's deposit to create a loan for Rina in the form of a checkable deposit. The money supply now is $ Suppose Second Republic Bank lends all its new excess reserves to Sean, who writes a check to Yvette, who deposits the money into her account at Third Fidelity Bank. Then Third Fidelity lends all its new excess reserves to Bob. Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves.
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