Fractional-reserve Banking and Reserves Loans Loan

BU204/02 social unit 8 June 14, 2011 ? Question In Westlandia, the commonplace gibes 50% of M1 in the form of currency, and the demand reserve ratio is 20%. 1. bringing close together how much the money supply go forth increase in response to a new cash deposit of $ euchre by completing the accomp some(prenominal)ing table. (Hint The basic row shows that the bank must suppress $100 in minimum militia20% of the $500 depositagainst this deposit, going $400 in excess militia that can be loanworded out. However, since the cosmos wants to hold 50% of the loan in currency, provided $400 ? 0. = $200 of the loan pass on be deposited in close to 2 from the loan granted in round 1. ) RoundDepositsRequired reservesExcess reservesLoansLoan proceeds held as currencyLoan proceeds deposited 1$500. 00$100. 00$400. 00$400. 00$200. 00$200. 00 2$200. 00$40. 00 $160. 00 $160. 00 $80. 00$80. 00 3$580. 00 $116. 00$464. 00$464. 00 $232. 00 $232. 00 4$232. 00 gibes$1512. 00 $256. 00 $1024. 0 0 $1024. 00 $512. 00 $512. 00 2. How does your solution compare to an economy in which the total amount of the loan is deposited in the banking establishment and the public doesnt hold any of the loans in currency? Hint Do another table with none of the loan proceeds held in currency. ) RoundDepositsRequired reservesExcess reservesLoansLoan proceeds held as currencyLoan proceeds deposited 1$500. 00$100. 00$400. 00$400. 00 2$200. 00$40. 00 $160. 00 $160. 00 3 $660. 00$132. 00 $528. 00 $528. 00 totals $1360. 00$272. 00 $1088. 00 $1088. 00 3. What does this imply about the relationship in the midst of the publics desire for retentivity currency and the money multiplier factor? It implies that if the public holds on to their money there would be more money in circulation and slight in banks reverse and then the multiplier would be less.