Question

In: Economics

8. Suppose Robina Bank receives a deposit of $55,589 and the reserve requirement is 7%. Answer...

8. Suppose Robina Bank receives a deposit of $55,589 and the reserve requirement is 7%. Answer the questions using this information.

Round your answers to two decimal places.

What is the amount that Robina Bank must keep on hand as required by the Federal Reserve (Fed)?

keep on hand: $

What is the amount that Robina Bank must have in excess reserves from this initial deposit?

excess reserves: $

What is the total change in the M1 money supply from this one deposit?

total change: $

Expert Solution

Answer:-

Initial deposit = $55,589

Reserve requirement = $55,589 * 7% = $55,589 * 0.07 = $3,891.23

Excess reserve = Total deposit - required reserve

= $55,589 - $3,891.23

= $51697.77

Money multiplier = 1 / reserve requirement

= 1 / 0.07

= 14.286

Change in money supply = Money multiplier x excess reserves

= 14.286 * $51697.77

= $7,38,554.34

Rahul Sunny answered 2 years ago

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