(a.) Reserve requirement for banks is set at 5%. Households deposit savings of $35,000 into the Third National Bank.
How much excess reserve does the deposit generate for the bank?
What is the maximum amount of new money that can be created in the banking system as a result of this deposit? Show all work.
(b.) What is the Discount Rate in the banking system?
Explain how the Fed manipulates this rate in order to achieve macroeconomic objectives.