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Assume that required reserves are 7 percent of deposits and that people hold no currency—all money is held in the form of checking deposits. suppose that the federal reserve purchases $30,000 worth of government bonds from ellen (a private citizen), and that ellen deposits all of the proceeds from the sale into her checking account at z bank. construct a balance sheet, with assets on the left and liabilities on the right, to show how ellen’s deposit creates new assets and liabilities for z bank. how much of this new deposit can z bank lend out? assume that it lends this amount to george, who then deposits the entire amount into his account at y bank. show this on y bank’s balance sheet. how much of this new deposit can y bank lend out? suppose joe takes out a loan for this amount from y bank and deposits the money into his account at x bank. show this on x bank’s balance sheet. the process of lending and relending creates money throughout the banking system. as a result of ellen’s deposit, how much money, in the form of deposits, has been created so far? if this process resulting from ellen’s deposit continues forever, how much money will be created?
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Assume that required reserves are 7 percent of deposits and that people hold no currency—all money i...
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