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    money creation and control

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    A bank has:

    25 in reserves at the Fed
    15 in AtM cash
    60 in Gov't securities
    100 in Loans

    90 in demand deposits
    110 in savings deposits

    required reserve ratio is 5%

    So if there is no currency drain and if all the funds loaned remained deposited in the First Student Bank, what is the quantity of loans and total deposits when the bank has no excess reserves?

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    Solution Preview

    The bank's total deposit = demand deposits + savings deposits = 90+110=200
    The required reserve = reserve ratio * deposits = 5% * 200 = 10
    When the bank has no excess reserve, it will ...

    Solution Summary

    A discussion of money creation and control ensues.