How might your reserve bank help you with this problem?

Chapter 4: E2



Chapter 4: E2

Chapter 5: P1, P6


As the executive of a bank or thrift institution you are faced with an intense seasonal demand for loans. Assuming that you loanable funds are inadequate to take care of the demand, how might your reserve bank help you with this problem?



Assume that banc one receives a primary deposit of $1 million. The bank must keep reserves of 20 percent against its deposit. Prepare a simple balance sheet of assets and liabilities for banc one immediately after the deposit is received.


Assume a financial system has monetary base of $25 million the required reserves ratio 1s 10 percent, and there are no leakages in the system.

  • What is the size of the money multiplier?
  • What will be the system’s money supply?

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