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Question #5: Multiple Deposit Creation [12 Points] For the following question assume the following: (1) The required reserve ratio in the banking system is 9%. (2) Banks hold no excess reserves. Any reserves above its required reserves are loaned out. (3) Individual households and firms do not hold currency. (a) Suppose that the Federal Reserve purchases $388,000 worth of bonds directly from Carlsbad Community Bank. Illustrate the T-account for Carlsbad Community Bank after this transaction has occurred. [3 Points] (b) Suppose that Carlsbad Community Bank loans out all of its excess reserves that resulted from the $388,000 Fed bond purchase to Ms. Seltzer who uses the funds to purchase a Condo from Mr. Sandoval. Mr. Sandoval deposits the proceeds of the home sale into his checking account at Oakwood Bank. Illustrate the T-account for Oakwood Bank after this transaction has occurred. [3 Points] (c) Suppose that Oakwood Bank loans out any excess reserves that resulted from the initial $388,000 Fed bond purchase to Mr. Sorensen. Mr. Sorensen uses the loan to purchase some farmland in Esmeralda County from Ms. Gray. Ms. Gray then deposits the funds from the sale of the land to her checking account at Esmeralda Savings and Loan. Illustrate the T-account for Esmeralda Savings and Loan after this transaction has occurred. [3 Points] (d) How much money (increase in total deposits) would be created in the banking system from the initial open market purchase of $388,000? Round your answer to two (2) decimal places. [3 Points]

          Question #5: Multiple Deposit Creation [12 Points]

For the following question assume the following:

(1) The required reserve ratio in the banking system is 9%.
(2) Banks hold no excess reserves. Any reserves above its required reserves are loaned out.
(3) Individual households and firms do not hold currency.

(a) Suppose that the Federal Reserve purchases $388,000 worth of bonds directly from Carlsbad Community Bank. Illustrate the T-account for Carlsbad Community Bank after this transaction has occurred. [3 Points]

(b) Suppose that Carlsbad Community Bank loans out all of its excess reserves that resulted from the $388,000 Fed bond purchase to Ms. Seltzer who uses the funds to purchase a Condo from Mr. Sandoval. Mr. Sandoval deposits the proceeds of the home sale into his checking account at Oakwood Bank. Illustrate the T-account for Oakwood Bank after this transaction has occurred. [3 Points]

(c) Suppose that Oakwood Bank loans out any excess reserves that resulted from the initial $388,000 Fed bond purchase to Mr. Sorensen. Mr. Sorensen uses the loan to purchase some farmland in Esmeralda County from Ms. Gray. Ms. Gray then deposits the funds from the sale of the land to her checking account at Esmeralda Savings and Loan. Illustrate the T-account for Esmeralda Savings and Loan after this transaction has occurred. [3 Points]

(d) How much money (increase in total deposits) would be created in the banking system from the initial open market purchase of $388,000? Round your answer to two (2) decimal places. [3 Points]

Question #5: Multiple Deposit Creation [12 Points]

For the following question assume the following:

(1) The required reserve ratio in the banking system is 9%.
(2) Banks hold no excess reserves. Any reserves above its required reserves are loaned out.
(3) Individual households and firms do not hold currency.

(a) Suppose that the Federal Reserve purchases 388,000 worth of bonds directly from Carlsbad Community Bank. Illustrate the T-account for Carlsbad Community Bank after this transaction has occurred. [3 Points]

(b) Suppose that Carlsbad Community Bank loans out all of its excess reserves that resulted from the388,000 Fed bond purchase to Ms. Seltzer who uses the funds to purchase a Condo from Mr. Sandoval. Mr. Sandoval deposits the proceeds of the home sale into his checking account at Oakwood Bank. Illustrate the T-account for Oakwood Bank after this transaction has occurred. [3 Points]

(c) Suppose that Oakwood Bank loans out any excess reserves that resulted from the initial 388,000 Fed bond purchase to Mr. Sorensen. Mr. Sorensen uses the loan to purchase some farmland in Esmeralda County from Ms. Gray. Ms. Gray then deposits the funds from the sale of the land to her checking account at Esmeralda Savings and Loan. Illustrate the T-account for Esmeralda Savings and Loan after this transaction has occurred. [3 Points]

(d) How much money (increase in total deposits) would be created in the banking system from the initial open market purchase of388,000? Round your answer to two (2) decimal places. [3 Points]

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