I. Assume that the reserve requirement is 5 percent and banks hold no excess reserves.
A. Assume that Ally Sheedy deposits $400 of cash into her checking account at Wells Fargo. Calculate each of the following.
1. The maximum dollar amount that Wells Fargo can initially lend.
2. The maximum total change in demand deposits in the banking system.
3. The maximum change in the money supply
A. Assume that Ally Sheedy deposits $400 of cash into her checking account at Wells Fargo. Calculate each of the following.
1. The maximum dollar amount that Wells Fargo can initially lend.
2. The maximum total change in demand deposits in the banking system.
3. The maximum change in the money supply
B. Assume that the Federal Reserve buys $5 million in government bonds on the open market. As a result of the open market purchase, calculate the maximum increase in the money supply in the banking system.
