Total Reserves =
Deposits in the reserve account at the fed + vault cash
15 million cash in vault
10 million Fed account
Required Reserves
Requirement 10% and bank has 1,000,000
.10 x 1,000,000 = ?
Excess Reserves
Total Reserves - Required reserves
Reserve: 25 million
Required: 10 million
(Difference means subtraction)
?
Total Reserves =
Deposits in the reserve account at the fed + Vault Cash
Required Reserves =
Reserve Requirement x checking account deposits
Excess Reserves =
Total Reserves - Required reserves
10%
.10 x 1000
= $100
$900
$100
Remember that the money supply consists of
B
B
A
$+900
$-900
$900 x .10
=$810
A
D
C
E
B
810 x .10 =
81
Lend: 729
Summarized as follows
1. Hunter deposits 1000 dollars in paper currency into Bank A
2. Banks create $9,000 in additional checking account deposits out of the 1000 dollars
Total amount of money supplied increased by? 10,000 dollars.
Change in money supply =
1/Reserve requirement x Change in reserve of first bank
Reserve requirement: 10% or .10
The reserves of Bank A: 1000
Change in Money supply = 1/.10 x 1000 = $10,000 dollars.