Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%
Mint: If the change is negative, be sure to enter the value as negative number.
Amount Deposited Change in Excess Reserves Change in Required Reserves
(Dollars)
1,800,000
(Dollars)
450,000
(Dellars)
1,350,000
Now, suppose First Main Street Bank loans out all of its new excess reserves to Simone, who immediately uses the funds to write a check to
Rajiv deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess
reserves to Charles, who writes a check to Ana, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new
excess reserves to Dina in turn.
Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar.
First Main Street Bank
Second Republic Bank
Third Fidelity Bank
Increase in Deposits Increase in Required Reserves Increase in Loans
(Dollars)
(Dollars)
337,500
(Dollars)
Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these
assumptions, the $1,800,000 injection into the money supply results in an overall increase of
in demand deposits
