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 33%.
The system as a whole could support up to $30,000 in new loans. If there were no leakages, the $10,000 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 33% of new loans. $10,000 is 33% of $30,000. Therefore, $30,000 worth of new loans can be created in the system with $10,000 of excess reserves. (The monetary multiplier is 1/.333 or 3; 3 times $10,000 = $30,000.) Check able deposits would then become $180,000 and actual reserves of $60,000 would just meet the legal requirement.
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A. by issuing checks. B. when they increase their desired reserve/deposit ratio. C. when they buy government bonds from the Federal Reserve. D. through multiple rounds of lending.
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A. Government agencies. B. The overall economy. C. Individual consumers. D. All of the choices are correct.
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A) ceteris paribus assumption. B) rational self-interest assumption. C) distinguishing characteristic of economics as a science. D) relationships assumption.