- Suppose that the T-account for Nan Bank Inc. is as follows:
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Assets
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Liabilities
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Reserves $100,000
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Deposits $500,000
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Loans $400,000
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(i) If the Bank of Canada requires banks to hold 5 percent of deposits as reserves, how much in excess reserves does Nan Bank Inc. now hold?
(ii) Assume that all other banks hold only the required amount of reserves. If Nan Bank Inc. decides to reduce its reserves to only the required amount, by how much would the economy's money supply increase?
2. The economy of Kyleland contains 2000 $1 bills.
- If people hold all money as currency, what is the quantity of money?
- If people hold all money as demand deposits and the banks maintain 100 percent reserves, what is the quantity of money?
- If people hold equal amounts of currency and demand deposits and the banks maintain 100 percent reserves, what is the quantity of money?
- If people hold all money as demand deposits and the banks maintain a reserve ratio of 10 percent, what is the quantity of money
If people hold equal amounts of currency and demand deposits and the banks maintain a reserve ratio of 10 percent, what is the quantity of money?