• Answer in clear, concise language.
• Include correctly drawn and labeled graphs and diagrams to support your answer where needed, even if the question does not specifically tell you to draw one.
• Separate and label the answer in the same manner in which the question is written. For example if there is a part A, B (i), B (ii), and C, your answer should have a part A, B (i), B (ii), and C.
• Answer the questions in logical order; they are designed that way for a reason. Be consistent with your answer.
• You may use standard economic abbreviations. RGDP for real GDP is fine.
1. Compute the required reserve ratio. (Show your work) obtained.
2. Suppose that Pam wants to borrow money to pay for a new car from Sharpeland Bank.
a. What is the maximum amount that Sharpeland Bank could loan out if it wants to keep all of its bonds?
b. What is the maximum amount that the banking system could create given the balance sheet above? declare
3. Suppose instead that Michael withdraws $10,000 in cash from his checking account at Sharpeland.
a. By how much would Sharpeland Bank’s reserves change based on Michael’s withdrawal? (Be specific.)
b. What is the immediate effect of the withdrawal on the M1 measure of the money supply? Explain.
c. As a result of the withdrawal, what is the new value of excess reserves for Sharpeland Bank based on reserve requirement from part (a)?