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.
You might also like to view...
Under a gold standard, as trade takes place and the foreign exchange market is affected, ______ tend(s) to restore equilibrium.
A) a change in the interest rate B) gold flows between nations C) currency flows D) changes in the value of gold
The mobility of _____ means that in the _____ it can be used for consumption, thus the burden of most corporate income taxes will be borne by the customers of a firm
a. labor; long run b. labor; short run c. capital; long run d. capital; short run