Assume that the Bank of Ecoville has the following balance sheet and the Fed has a 10% reserve requirement in place:
Balance Sheet for Ecoville International Bank
ASSETS LIABILITIES:
Cash $33,000
Demand Deposits $99,000
Loans 66,000
Now assume that the Fed lowers the reserve requirement to 8%.
1.What is the maximum amount of new loans that this bank can make?
2.Assume that the bank makes these loans. What will the new balance sheet look like?
3.By how much has the money supply increased or decreased?

Question

Assume that the Bank of Ecoville has the following balance sheet and the Fed has a 10% reserve requirement in place:
Balance Sheet for Ecoville International Bank
ASSETS LIABILITIES:
 Cash $33,000
 Demand Deposits $99,000
 Loans   66,000
 Now assume that the Fed lowers the reserve requirement to 8%.
1.What is the maximum amount of new loans that this bank can make?
2.Assume that the bank makes these loans. What will the new balance sheet look like?
3.By how much has the money supply increased or decreased?

dmills · Answer

Hey everyone...here is the rest of the question...thx to anyone that can help me.
4.If the money multiplier is 5, how much money will ultimately be created by this event?
5.If the Fed wanted to implement a contractionary monetary policy using reserve requirement, how would that work?