How large is the money supply (M1)? How large are the required reserves? How large are excess reserves? By how much could the banks increase their lending activity?

Related BrainMass Solutions

• Banking and the money supply

  (d) By how much could the banks increase their lending activty? 6. Assume the banking system contains (see data in attached file) (a) Are the banks fully utilizing their lending capacity?

• Monetary Policy and Money Creation in the United States

  (source: Linda Beale from the University of Nebraska, Omaha; "How Banks Create Money") Banks increase the supply of money through their lending activities which create money in the form of new checking deposits.

• US Economy Function and Regulation

  How can the Fed affect the money supply by using the discount rate? 4. Explain how banks are financial intermediaries. What are reserves? What are excess reserves?

• Money supply and investment demand

  Banks may create more money by lending out their excess reserves, which we can calculate using: Resultant change in the money supply = 1/m x initial change in excess reserves.

• Money and Banking

  Banks usually hold excess reserves and people will withdraw money. Because banks will hold excess reserves, the amount of money each bank could loan will be less than the amount calculated above. 2.

• Effect of a change in Required Reserves on a bank's balance sheet

  The total effect on the money supply is the initial increase divided by RRR, so the money supply will increase by a total of ($60,000/0.1 = ) $600,000. >5.

• Role of Central Bank

  When the loan is paid off, the money supply decreases. A net increase in bank lending results in a shortage of reserves needed by the banking system, which only the Fed can supply.

• Macroeconomics review questions: Monetary & Fiscal Policy

  If the required reserve ratio is 5 percent, how much in excess reserves does this bank hold? b. What is the maximum amount this bank can expand its loans? c.

• Reserve requirements

  Assume Banks A, B, C, D, and E each wish to hold 5 percent excess reserves. How would holding this level of excess reserves affect the total change in the money supply (again, excluding the initial $1,000 investment as part of the change)?