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NAME SECTION Print Last Name, First Name Use the information in the T-account for the Banking System to answer questions 6 -9 Liabilities (billions) for all banks Assets (billions) for all banks Total Bank Reserves $65 Checkable Deposits $500 Loans S435 6. If the required reserve ratio is 12.5 percent, the banking system currently has excess reserves equal to a. $12 5 billion. b. $50 billion. e. $2.5 billion. d. $0. If the required reserve ratio is 12 5 percent, the simple deposit multiplier is equal to: a. 2 c. 8 d. 12.5. 8. If every bank in the system with a 12.5 percent required reserve ratio continues to make new loans unti currency leakages, then checkable deposits can increase by a maximum of a. $8 billion. b $10 billion. c. $12.5 billion. d. $20 billion. il excess reserves in the entire system are equal to zero and there are no 9. If the M1 money supply was initially equal to $1. 500 billion, and then checkable deposits increased by the amount indicated in the previous question, the new value of MI will be: a. S2,000 billion. b. $1,520 billion. c. $2.500 billion d. $1,600 billion. In a fractional reserve banking system, money is created when: a. banks accept cash deposits. b. the Treasury Department prints new coins. c. banks make new loans. d. the US. Mint issues new paper money 10. Chapter 10 Assignments 212
Explanation / Answer
6. 12.5% of 500 = 62.5 billion
Bank reserve = 65
Excess reserve =65- 62.5
= 2.5 billion
7.
Deposit multiplier = 1/ reserve ratio
=1/.125
=8