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FRQ-Banking T Accounts and Money Expansion Practice #3

Last updated over 1 year ago

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Akwankyerɛ

Make a T-Account on your WHITEBOARD!

Suppose the First Bank of Burgin knows that the Central Bank has specified a required reserve ratio of 10%. Currently the bank has $1,000,000 in cash reserves.

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1.

a. If the bank is holding no excess reserve cash, what are total deposits at the First Bank of Burgin? Explain.

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2.

b. Suppose Sandra finds $2000 in her sofa and deposits the money at the bank. If the First Bank of Burgin holds no excess reserves, how much can the bank lend and how much cash must the bank hold in required reserves?

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3.

c. At most how much will Sandra’s deposit increase the money supply?