(Answered) Q1 the following table shows the balance sheet for all

Economics

Q1. The following table shows the balance sheet for all banks combined in the banking system. All banks have a target reserve ratio of 12.5 percent.

Assets		Liabilities/Equity
Reserves	$180000	Demand deposits	$1200000
Loans	900000	Shareholder's equity	200000
Securities	220000
Fixed Assets	100 000
Totals	$1400000	Totals	$1400000

a) What is the amount of excess reserves?

b) What is the maximum amount that loans and deposits can be increased?

c) If the banking system were fully loaned up, by how much will the money supply have increased?

2. Assume the money market for the economy of San Pedro is in equilibrium.

a) Using a diagram, graphically illustrate equilibrium in the money market.

b) Now suppose there is an increase in the money supply. Explain and illustrate in the same diagram (in part a), the effect on an increase in the money supply.

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