Discussion:
Suppose that the reserve ratio is .25, and that a bank has actual reserves of $15,000, loans of $40,000, and demand deposits of $50,000.
A. Excess reserves are $____________________.
B. This bank, being a single bank in a multibank system, can safely lend $____________________.
C. The multibank system can safely lend $__________________.
D. It is possible for the monetary base to increase by a total of $___________________. Assume now that the Fed lowers the reserve ratio to .20:
E. This bank, being a single bank in a multibank system, can now safely lend $_____________________.
F. The multibank system can safely lend $____________________.
G. It is now possible for the monetary base to increase by a total of $________________________.
H. The increase/decrease in the potential money supply because of the decrease in the required reserve ratio is $_____________________.