The following questions are from, Fin 100.
Assume a financial system has a monetary base (MB) of $25 million. The required reserves ratio is 10 percent, and no leakages are in the system.
- a.What is the size of the money multiplier (m)?
- b.What will be the system's money supply?
2. Assume a bank has $5 million in deposits and $1 million in vault cash. If the bank holds $1 million in excess reserves and the required reserves ratio is 8 percent, what level of deposits are being held?
3. Assume that Banc One receives a primary deposit of $1 million. The bank must keep reserves of 20 percent against its deposits. Prepare a simple balance sheet of assets and liabilities for Banc One immediately after the deposit is received.