5. The money creation processSuppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 10%.Carlos, a client of First Main Street Bank, deposits $500,000 into his checking account at First Main Street Bank.Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans).AssetsLiabilitiesComplete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 10%.Hint: If the change is negative, be sure to enter the value as negative number.Amount Deposited Change in Excess(Dollars)(Dollars)rves Chan in Required Reserves(Dollars)500,000Now, suppose First Main Street Bank loans out all of its new excess reserves to Amy, who immediately uses the funds to write a check to Van. Vandeposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves.to Felix, who writes a check to Deborah, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess.reserves to Janet in turn. Now, suppose First Main Street Bank loans out all of its new excess reserves to Amy, who immediately uses the funds to write a check to Van. Vandeposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reservesto Felix, who writes a check to Deborah, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excessreserves to Janet in turn.Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar.Increase in Deposits Increase in Required Reserves(Dollars)Increase in Loans(Dollars)(Dollars)First Main Street BankSecond Republic BankThird Fidelity BankAssume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under thesein demand deposits.assumptions, the $500,000 injection into the money supply results in an overall increase of

The assets include loans, securities, property, and reserves. The liabilities include capital stock…

Answered: uses the funds to write a check to Van.…

uses the funds to write a check to Van. ublic Bank lends out all of its new excess nk. Third Fidelity lends out all of its new nswer to the nearest dollar. e in Loans llars)

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter27: Money And Banking

Section: Chapter Questions

Problem 4SCQ: For the following list of items, indicate If they are in M1, M2, or neither: Your 5,000 line of...

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