Calculate the money supply in case of Fractional reserve banking system. Pretend the Reserve Ratio is...

Calculate the money supply in case of Fractional reserve banking system. Pretend the Reserve Ratio is by 5%.

Borrowers first withdrew the loan from 1^st National Bank and deposited it in 2^nd National Bank.
Borrowers Took The Loan from 2^nd National Bank and Deposited it in 3^rd National Bank
Then Borrowers withdrew finally the loan from 3^rd National Bank and deposited it in 4^th National Bank.

Questions: a- Open a T Account for each Bank with the previous situations.

b-Show the Impact on money supply (How much the $75 of reserves had generated)

Calculate the money supply in case of Fractional reserve banking system. Pretend the Reserve Ratio is by 5%.

Borrowers first withdrew the loan from 1^st National Bank and deposited it in 2^nd National Bank.
Borrowers Took The Loan from 2^nd National Bank and Deposited it in 3^rd National Bank
Then Borrowers withdrew finally the loan from 3^rd National Bank and deposited it in 4^th National Bank.

Questions: a- Open a T Account for each Bank with the previous situations.

b-Show the Impact on money supply (How much the $75 of reserves had generated)

Expert Solution

The total money supply in the economy till the point where borrowers deposit money in 4th national Bank

=$1000 + $950 + $902.5 + $857.375 = $3709.875

So, the money supply in the economy increases from $1000 to $3709.875

Rahul Sunny answered 2 years ago

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