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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The above table shows the distribution of wealth and income in Miseria. The Lorenz curve for wealth would
A) intersect the horizontal axis at 100 percent. B) bow outward more to the right than does the Lorenz curve for income. C) lie parallel to the line of equality. D) become flatter as one moves from left to right.
Suppose your economics professor has an extra copy of textbook that he or she would like to give to a student in the class. Which of the following schemes is the most likely to result in an efficient outcome?
A. Auctioning off the textbook to the highest bidder. B. Letting students take turns using the textbook. C. Randomly selecting one student to receive the textbook. D. Giving the textbook to the student who has the lowest midterm score.