Essay
Suppose Joe is digging around in his basement and he finds $1,000 hidden behind a wall.Assume that Joe takes the $1,000 and deposits it in his bank.Assume also that banks hold no excess reserves,people hold no currency,and the required reserve ratio is 5 percent.
(A)When Joe deposits the $1,000 in his bank,what happens to the balance sheet?
(B)How many loans can the bank create?
(C)Suppose Joe's bank makes a loan to Sally,and she deposits the money in her bank.How many loans can Sally's bank make?
(D)If banks continue to make loans,what is the total change in deposits?
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(A) Deposits and reserves increase by $1...View Answer
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