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ASSETS                                                                                                   LIABILITIES & NET WORTH

Actual Reserves       20,000                                                                            Demand Deposits          60,000

Required Reserves    __________

Excess Reserves        __________

Loans                         40,000

______________                                                                                                        __________

60,000                                                                                                                            60,000

A.       Given a Reserve Requirement of 20%, what is the Required Reserve for this bank? $____________

What is the Excess Reserve for this bank? S___________

B.      How much money can this bank lend?   $______________

C.      If this money goes through the Banking System, how much does the total money supply increase? $____________

D.      IF the Reserve through ___________________ money policy, is lowered to 10%, what is the new Required Reserve?  $________________  the new Excess Reserve? $_____________

E.       NOW  much can this bank lend? $________________

F.       If this money goes through the Banking system, how much does the total money supply increase after the change in the RR?  $______________

G.      So, through a change from 20% to 10%, the Banking System was able to increase the available supply of money by $_____________

While Jon is walking to school one morning, a helicopter flying overhead drops $300. Not knowing how to return it, Jon keeps the money and deposits it in his bank. (No one in this economy holds cash.) If the bank keeps only 10 % of its money in reserves and is fully loaned out, calculate the following:

a.         How much money can the bank now lend out?

b.         After this initial transaction, by how much has the money in the economy changed?

c.         What’s the money multiplier?

d.         How much money will eventually be created by the banking system from Jon’s $300?

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