Answer to Question #69013 in Macroeconomics for Amanda
Assume that banks hold no excess reserves, and the public holds no currency. If a
customer deposits$10,000 in Bank A,
(i) Explain what happens to Bank A (initially) and two additional steps in the
deposit expansion process, assuming a 5 % reserve requirement.
(ii) When will the money creation process end? Explain. 3marks
(iii) How much do deposits and loans increase for the banking system when
the process is completed? 3marks
(iv) What is the impact, if any, on the level of reserves and the monetary base?
(v) Use a T-account to show the banking system in equilibrium.
(vi) If the required reserve ratio remains 5% but the banking system now
holds excess reserves of 5%, calculate the money multiplier and explain
the impact of excess reserves on the money creation process