Assignment Instructions/ Description
Please answer this!
DROP DOWN SELECTIONS:
Assets options (left side)
- building and furniture
- Deposits
- Loans
- Net worth
-Reserves
Assess options (right side)
-$450,000
- $1,350,000
-$1,800,000
-$4500,000
LIABILITIES options (left side)
-Building and furniture
-Deposits
-Loans
-Net worth
-Reserves
Liabilities options (right side)
-$450,000
- $1,350,000
-$1,800,000
-$4500,000 Image transcription text7. The money creation process
Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at
25%. Brian, a Southeast Mutual Bank customer, deposits $1,800,000 into his checking account at the local branch.
Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans).
Assets
Liabilities
Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%.
Hint: If the change is negative, be sure to enter the value as negative number.
Amount Deposited Change in Excess Reserves Change in Required Reserves
(Dollars)
(Dollars)
(Dollars)
1,800,000
Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Alyssa, who immediately uses the funds to write a check to Tim. Tim
deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to
Edison, who writes a check to Crystal, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess reserves to
Hilary 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
Increase in Loans
(Dollars)
(Dollars)
(Dollars)
Southeast Mutual Bank
Walls Fergo Bank
PJMorton Bank
Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these
assumptions, the $1,800,000 injection into the money supply results in an overall increase of
in demand deposits.... Show more