Big bucks Bank has a desired reserve ratio of 5%. Assume that the bank's actual reserves are equal to desired reserves. The bank receives a cash deposit of $50 thousand. How much will the bank lend assuming that it does not want to hold any excess reserves. Suppose further that after the loans are made, the funds end up in another bank(say, XYZ bank). If all banks in the system have the same desired reserve ratio, and there is on currency drain, by how munch will deposits increase in total? How much of this is due to new loans? What is the exact deposit multiplier in the case? Show your work on a T-account also.
now suppose that bank customers want to hold some cash also, say 1% of deposits, will the deposit multiplier remain the same? If not, what is the new multiplier?
Big bucks Bank has a desired reserve ratio of 5%. Assume that the bank's actual reserves are equal to desired reserves. The bank receives a cash deposit of $50 thousand. How much will the bank lend assuming that it does not want to hold any excess reserves. Suppose further that after the loans are made, the funds end up in another bank(say, XYZ bank). If all banks in the system have the same desired reserve ratio, and there is on currency drain, by how munch will deposits increase in total? How much of this is due to new loans? What is the exact deposit multiplier in the case? Show your work on a T-account also.
now suppose that bank customers want to hold some cash also, say 1% of deposits, will the deposit multiplier remain the same? If not, what is the new multiplier?
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