4-7 It has been determined that, in aggregate, financial institutions with depository accounts currently hold excess reserves equal to $3 billion—that is, they hold $3 billion more than is necessary to meet the reserve requirments associated with existing deposits. The reserve requirment applicable to all deposits is 15 percent. Assume that changes in reserves held by financial institutions affect deposits only ( that is, amount lent out are always redeposited in the financial institutions.)

a. All else being equal, what would be the effect on deposits if financial institutions immediately

Question

4-7 It has been determined that, in aggregate, financial institutions with depository accounts currently hold excess reserves equal to $3 billion—that is, they hold $3 billion more than is necessary to meet the reserve requirments associated with existing deposits. The reserve requirment applicable to all deposits is 15 percent. Assume that changes in reserves held by financial institutions affect deposits only ( that is, amount lent out are always redeposited in the financial institutions.)

a. All else being equal, what would be the effect on deposits if financial institutions immediately