Q1) Assume the T-account for First National Bank is as follows
| Assets |
Liabilities |
| Reserves $100,000 |
Deposits $500,000 |
| Loans $400,000 |
|
a. If Fed needs bank to hold 5% of deposits as reserves, how much in excess reserves does First National Bank hold?
b. Suppose that all other banks hold only required amount of reserves. If First National decides to reduce its reserves to only required amount, by how much would economy money supply increase?