As the executive of a bank or thrift institution, you are faced with an intense seasonal demand for loans. Assuming that your loanable funds are inadequate to take care of the demand, how might your reserve Bank help you with this problem?
1. Assume that Bank One received a primary deposit of $1 million. The bank must keep reserves of 20 percent against its deposits. Prepare a simple balance sheet of assets and liabilities for bank one immediately after the deposit is received.
2. Assume a financial system has a monetary base (MB) of $25 million. The required reserves ratio is 10 percent and no leakeges are in the system.
A what is the size of the money multiplier (m)?
B What will be the systems money supply?