1.If you take $100 out of your piggy bank and deposit it in your checking account, how did M1 change? Did M2 change? If the deposit will be loaned under 20 per cent reserve ratio, what is the change in M1 and M2 as a result of $100 into the banking system?
2.A bank has deposits of $400. It holds reserves of $50. It has purchased government bonds worth $70. It has made loans of $300. Set up a T-account balance sheet for the bank, with assets and liabilities, and calculate the bank's net worth.
3-1)Define money multiplier.
3-2)When the reserve ratio will be up, how about the size of money multiplier? Is that larger or smaller?
3-3)Explain what will happen to the money multiplier process if there is an increase in the reserve requirement?
4. If the reserve ratio is 4 per cent, what is a total increase in money supply when there is a new deposit of $500?(Assume there are multiple loans with the new deposit).