Simon opens a new checking account and deposits $8,000 in cash in JCM Bank. The required reserve ratio is 10 percent. (a) Draw a correctly labeled balance sheet (T-account) for JCM Bank and show the numerical value of each of the following as a result of this deposit before any loans have been made. (i) Change in Required Reserves (RR) (ii) Change in Excess Reserves (ER) (iii) Change in Demand Deposits (DD) (b) What is the maximum amount of loans that JCM Bank can initially make from Simon's deposit? Provide a numerica value. (c) As result of Simon's deposit, calculate the maximum amount by which the money supply will increase throughout the banking system. Show your work. (d) In general, how will an increase in the money supply affect unemployment in the short run? Explain.
Simon opens a new checking account and deposits $8,000 in cash in JCM Bank. The required reserve ratio is 10 percent. (a) Draw a correctly labeled balance sheet (T-account) for JCM Bank and show the numerical value of each of the following as a result of this deposit before any loans have been made. (i) Change in Required Reserves (RR) (ii) Change in Excess Reserves (ER) (iii) Change in Demand Deposits (DD) (b) What is the maximum amount of loans that JCM Bank can initially make from Simon's deposit? Provide a numerica value. (c) As result of Simon's deposit, calculate the maximum amount by which the money supply will increase throughout the banking system. Show your work. (d) In general, how will an increase in the money supply affect unemployment in the short run? Explain.
Chapter12: Money And Banking
Section: Chapter Questions
Problem 10E
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Step 1: Define Money Supply
VIEWStep 2: Calculate Change in RR, Change in ER and Change in DD
VIEWStep 3: Calculate the maximum amount of loans
VIEWStep 4: Calculate the increase in money supply
VIEWStep 5: Determine how will an increase in the money supply affect unemployment in the short run
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