If the balance sheet below were for the entire banking system instead of just a single bank, by how much could loans be expanded? Assume a reserve ratio of 20%.
The system as a whole could support up to $100,000 in new loans. If there were no leakages, the $20,000 in excess reserves would be in the system as if the system were one gigantic bank. As long as those reserves are in the system they must equal 20% of new loans. $20,000 is 20% of $100,000. Therefore, $100,000 worth of new loans can be created in the system with $20,000 of excess reserves. (The monetary multiplier is 1/.20 or 5; 5 times $20,000 = $100,000.) Check able deposits would then become $200,000 and actual reserves of $40,000 would just meet the legal requirement.
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Refer to the information provided in Figure 2.5 below to answer the question(s) that follow.
Figure 2.5Refer to Figure 2.5. The marginal rate of transformation in moving from Point A to Point B is
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Refer to the information provided in Table 22.6 below to answer the question(s) that follow.
Table 22.6
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