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.

Economics:

10th Edition

ISBN:9781285859460

Author:BOYES, William

Publisher:BOYES, William

Chapter12: Money And Banking

Section: Chapter Questions

Problem 10E

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