Problem

1. As the executive of a bank or thrift institution you are faced with an intense seasonal demand for loans. Assuming that you loanable funds are inadequate to take care of the demand, how might your Reserve Bank help you with this problem? When giving someone a loan as the lender I would acquire interest in return on top of the loan being paid back.

2. 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. ASSETS LIABILITIES $200,000 reserves $800,000 liabilities

3. Assume a financial system has a monetary base of $ 25 million. The required reserves ratio is 10 percent, and there are no leakages in the system.

a. What is the size of the money multiplier?
b. What will be the system's money supply? $250,000,000.