Deposits = [bank reserves] / [desired reserve-deposit ratio]

Money supply = [currency held by the public] + [deposits]

Let X = currency held by the public = bank reserves.

Then the money supply equals X + X / [desired reserve-deposit ratio]

As the money supply is 2450 and the public holds 700 in currency, bank deposits
must equal 1750.
Now to find the desired reserve-deposit ratio, we can use the formula : [desired
reserve-deposit ratio] = [bank reserves] / [deposits] = 350 / 1750 = 0.2

To calculate the money multiplier, we can use the formula : [money multiplier] = 1
/ [desired reserve ratio] = 10

To calculate the excess reserves, we must first determine the desired reserves =
[deposits] � ([reserve ratio] / 100) = $10,000.
Now, we can use the formula : [excess reserves] = [actual reserves] - [desired
reserves] to get the excess reserves of $14,000.

To calculate the maximum amount that the banking system might lend, we can use the
formula [maximum demand-deposit creation] = [excess reserves] � [money multiplier]

Reserves should be $24,000, because this amount does not change when the bank
makes new loans.
Securities should be $36,000, because this amount does not change when the bank
makes new loans.

Loans should be $180,000, because it should be equal to the original amount listed
plus the amount of the new loans.
Demand Deposits should be $240,000, because it should be equal to the original
amount listed plus the amount of the new loans.

f the banks' desired reserve ratio (rr) is 2.5% and the public's currency ratio
(cr) is 7.5% an increase in high powered money (H) of $1,000 will result in:an
increase in deposits of $10,000 and an increase of $750 in the public's cash
holdings.
a)
The Bank A reserves should be $36.00, but you have not entered this. This will
cost you 1 mark.
The Bank A loans should be $84.00, but you have not entered this. This will cost
you 1 mark.
The Bank A Deposits should be $120.00, but you have not entered this. This will
cost you 1 mark.

b)
The Bank B reserves should be $25.20, but you have not entered this. This will
cost you 1 mark.
The Bank B loans should be $58.80, but you have not entered this. This will cost
you 1 mark.
The Bank B Deposits should be $84.00, but you have not entered this. This will
cost you 1 mark.

c)
The Bank C reserves should be $17.64, but you have not entered this. This will
cost you 1 mark.
The Bank C loans should be $41.16, but you have not entered this. This will cost
you 1 mark.
The Bank C Deposits should be $58.80, but you have not entered this. This will
cost you 1 mark.

d)
Deposits:
The first deposit should be $120.00, but you have not entered this. This will cost
you 1 mark.
The second deposit should be $84.00, but you have not entered this. This will cost
you 1 mark.
The third deposit should be $58.80, but you have not entered this. This will cost
you 1 mark.
The fourth deposit should be $41.16, but you have not entered this. This will cost
you 1 mark.

Expression:
Your answer was: Not Answered
The correct answer was: 120
The first amount here is the amount of the initial deposit.
You will lose 1 mark for this part.
Your answer was: Not Answered
The correct answer was: 1
The first term of the sum is the proportion of the initial cash deposited in the
bank the first time. It is always 1.
You will lose 1 mark for this part.
Your answer was: Not Answered
The correct answer was: 0.7
The second term of the sum is the proportion of the first deposit that was loaned
by the first bank and deposited in the second. It is calculated as 1 - [reserve
ratio].
You will lose 1 mark for this part.
Your answer was: Not Answered
The correct answer was: 0.7
The third term of the sum is the proportion of the previous second deposit that
makes it to the third bank from the second. This is also calculated as 1- [reserve
ratio].
You will lose 1 mark for this part.

e)
Money multiplier:
Your answer was: 0.00
The correct answer was: 3.33
The multiplier, which is the sum of all the numbers in the square brackets in the
previous part, can be otherwise calculated as [1 / (1 - 0.7)] = 3.33.
You will lose 1 mark for this part.
New money supply:
Your answer was: $0.00
The correct answer was: $399.60
The new money supply is the original deposit multiplied by the multiplier. In this
case it is calculated as: 3.33 � $120.0 = $399.6.
You will lose 1 mark for this part.

f)
Your answer was: $0.00
The correct answer was: $222.86
The amount of money created can be calculated as [multiplier � primary deposit] -
primary deposit. In this case the calculation is as follows:
New money supply = $120.0 � [ 1 / ( 1 - 0.6499999999999999 )] or $120.0 � [ (1 /
0.35000000000000003] = $342.86.
The amount of money created = [new money supply] - [original deposit]
The amount of money created is therefore $222.86.
You will lose 1 mark for this part.