Essay
Assume that Empathy State Bank begins with this balance sheet and is fully loaned-up. Use the information given to answer the following questions. 
I. For this state bank, legal reserves are defined to be vault cash plus deposits at the Fed. What are this bank's reserves?
II. What is the value of the reserve requirement?
III. If the bank receives a new deposit of $5,000 and the bank wants to remain fully loaned-up, how much of this new deposit will the bank lend out?
IV. What is the potential money multiplier equal to?
V. When the new deposit to Empathy State Bank works itself through the entire banking system (assume all banks are fully loaned-up), how much new money may be created?
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I. $1,000 (Vault cash + Deposits at the ...View Answer
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