Assume that Jill deposits $20,000 in cash into her checking account at Welcome National Bank and the central bank has set a required reserve ratio of 10%.
Explain the immediate effect of her deposit on the M1 measure of the money supply.
If Welcome National Bank holds an additional 10% of her deposit in reserves, calculate the following:
the maximum amount the bank will loan out
the maximum increase in the money supply as a result of this transaction
(Calculate means show your work on the AP exam.)
Explain the impact of Ela's deposit on real interest rates.