Suppose again that checkable deposits started off at 1 300 000 in First Main Street Bank the required reserve ratio is 15 and no

Question

Suppose again that checkable deposits started off at 1 300 000 in First Main Street Bank the required reserve ratio is 15 and no excess reserves and no cash leakage exist You know from the previous step that due to the sale of securities by the Fed the money supply in the economy contracted from 1 300 000 to 1 292 000 But the contraction of the money supply does not stop with First Main Street Bank It moves to other banks The loan repayment that Sharon made to First Main Street Bank was written on a check Second Republic Bank issued Then when the check cleared the reserves of Second Republic Bank declined and Second Republic Bank found itself reserve deficient as well It applied loan repayments to its reserve deficiency position The effect continued with other banks and so on The initial removal of funds in the amount of 8 000 will cause the money supply to contract by supply is Hint Round the results of your calculations to the nearest dollar Therefore the money Grade Final Step

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