Suppose again that checkable deposits started off at 400 000 in First Main Street Bank the required reserve ratio is 15 with no

Question

Suppose again that checkable deposits started off at 400 000 in First Main Street Bank the required reserve ratio is 15 with no excess reserves and no cash leakage First Main Street Bank takes the entire 8 000 in excess reserves that resulted from the open market purchase by the Fed and creates a loan for Susan in a form of a new checkable deposit with a balance of 8 000 The money supply now is s Then Susan writes a check for 8 000 to Alex who immediately deposits the full amount into his checking account at Second Republic Bank Complete the following table to show the effect of Alex s deposit on the Second Republic Bank s balance sheet Liabilities Reserves Loans Assets Alle donncit on the Second Republic Bank s balance sheet The money supply now is s Checkable Deposits Now Second Republic Bank uses the entire 6 800 in excess reserves that resulted from Alex s deposit to create a loan for Becky in the form of a checkable deposit Suppose Second Republic Bank lends all its new excess reserves to Clancy who writes a check to Eileen who deposits the money into her account at Third Fidelity Bank Then Third Fidelity lends all its new excess reserves to Hubert Assume this process continues with each successive loan deposite into a checking account and no banks keeping any excess reserves Under these assumptions the 8 000 injection into the money supply results in an overall increase of in checkable deposits

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