Suppose that in a country the total holdings of banks were as follows: required reserves...
Suppose that in a country the total holdings of banks were as
follows:
required reserves = $45
million
excess reserves = $15 million
deposits = $750 million
loans = $600 million
Treasury bonds = $90 million
a. Show that the balance sheet balances if these
are the only assets and liabilities.
b. Assuming that people hold no currency, what happens to each of these values if the central bank changes
the reserve requirement ratio to 2%, banks still want to hold the same percentage of excess reserves, and
banks don’t change their holdings of Treasury bonds? How much does the money supply change by?
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Suppose that in a country the total holdings of banks were as
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