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timer Asked: Dec 3rd, 2015

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Help me understand this Economics question please, " If a single bank is holding $1,000,000 in required reserves and the reserve requirement is reduced from 25% to 20%, the bank will be able to lend what additional amount?  (Reconstructing this bank's T-account will help you answer this question.)   a.  $10,000.  f. $500,000.   b.  $50,000.  g.  $1,000,000.   c.  $100,000.  h.  $$4,000,000.   d.  $200,000.  i. $5,000,000.   e.  $250,000.  j.  Who knows?

A bank has $5000 in vault cash, $15,000 in reserves on deposit with the Fed, $3000 in gold, $1000 in U.S. government securities, and $1000 in other securities, and $105,000 in demand deposit liabilities. The reserve requirement for this bank is 20%.  In this situation, what will tend to happen with this bank?

  a.  a loan for $15,000 will be made.

  b.  a loan for $5,000 can be made.

  c.  $1,000 in loans must be called in.

  d.  $5,000 in loans must be called in.

  e.  the money supply will shrink by $25,000.

  f.  the money supply will increase by $25,000.

  g.  the money supply will increase by $5,000.

  h.  the money supply will decrease by $5,000.    Answer:  .

  Given the situation in the question above, what will happen to the money supply for the banking system as a whole?  (Use the same set of answers.)

    Answer:  .

3.  Assume that I move $1000 from my credit union savings account to my checking account at the same credit union.  Indicate whether the following statements will be true or false:

  a.  As a result of this, the amount of currency will decrease.  T  F  (Circle one)

  b.  The level of M1 will rise.  T  F  (Circle one)

  c.  The level of M2 will rise.  T  F       

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