Problem
1. Explain why a single commercial bank can safely lend only an amount equal to its excess reserves but the commercial banking system as a whole can lend by a multiple of its excess reserves. What is the monetary multiplier, and how does it relate to the reserve ratio?
2. Assume that Jones deposits $500 in currency into her checkable-deposit account in First National Bank. A halfhour later Smith obtains a loan for $750 at this bank. By how much and in what direction has the money supply changed? Explain.
The response should include a reference list. Double-space, using Times New Roman 12 pnt font, one-inch margins, and APA style of writing and citations.