The Fed conducts an open market operation and increases a bank's excess reserves by $2,000
Explain the first five rounds of the money creation process if the desired reserve ratio is 25 percent and if people keep no currency outside of the banking system.
In round one, the bank gains $2,000 of reserves which it lends. The next bank receives as a deposit the amount of the loan. The bank keeps $500 as desired reserves and lends $1,500. In round three, the third bank receives the $1,500 in a deposit. It keeps 25 percent, or $375, as desired reserves and lends the rest, $1,125. In round four, the fourth bank receives the $1,125 in a deposit. It keeps 25 percent, $281.25, as desired reserves and lends the remainder, $843.75. Finally in round five, the next bank receives the $843.75 in a deposit. It keeps $210.94 as desired reserves and lends the rest, $632.81.
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In a closed economy, private saving is equal to which of the following? (Y = GDP, C = Consumption, G = Government purchases, T = Taxes, and TR = Transfers)
A) Y + TR - C - T B) Y - C - T C) Y - G - T + TR D) Y - G - T
Which of the following is true about the equation of exchange?
a. The equation of exchange can be presented as: M V = P Q b. Velocity represents the average number of times that a dollar is used in purchasing final goods or services in a one-year period. c. If M increases, and V remains constant, then P must rise and/or Q must rise. d. All of the above are true about the equation of exchange.
The only item which would be consistent with a decreased likelihood of cartel formation for production of a product is
a. patent protection b. price inelastic demand c. many producers d. income elastic demand e. limited market entrance
Assume the Unico Corporation is producing 40 units of output and selling the output in a perfectly competitive market for $5 per unit. Its total fixed costs are $110 and its average variable cost is $4 for each of the 40 units of output. Unico:
A) earns a profit of $40. B) maximizes its profits. C) earns a loss of $70. D) should shut down.