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FRQ-Banking T Accounts and Money Expansion Practice #1

Last updated 12 months ago

6 questions

Assume the RR is 10%.

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Question 1

1.

What is the dollar amount of new loans that can be made at the moment? (In other words, what are the excess reserves?)

Question 2

2.

Mr. B deposits $100 into First Superior Bank. Calculate the new amount of new loans that the bank can make. (In other words, what does Mr. B's deposit make in NEW excess reserves?)

Question 3

3.

Because of Mr. B's deposit, calculate the new amount of loans OVER time that can be made. (Over time MEANS USE THE MONEY MULTIPLIER!)

Question 4

4.

With Mr. B's deposit, calculate the change of demand deposits OVER time. (Over time MEANS USE THE MONEY MULTIPLIER!)

Question 5

5.

Due to Mr. B's deposit, what is the change of the money supply due to the money expansion multiplier?

Question 6

6.

In one word, why is the actual change in money supply from a deposit less than the theoretical change in money supply due to the money expansion multiplier?