Bank have zero excess reserves

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Reference no: EM13831183

Suppose that First National Bank, Second National Bank, and Third National Bank have zero excess reserves. The required reserve ratio is 20%. The Federal Reserve buys a government bond worth $1.5 million from John, a client of First National Bank. He deposits the money into his checking account at First National Bank.

Tasks:

Suppose that First National Bank loans out all its new excess reserves to Nancy, who immediately uses the funds to write a check for Mark. Mark deposits the funds immediately into his checking account at Second National Bank. Then, Second National Bank lends out all its new excess reserves to Kyle, who writes a check for Amy, who deposits the money into her account at Third National Bank. Third National Bank lends out all its new excess reserves as well.

Fill in the following table to show the effect of this ongoing chain of events at each of the banks. Enter each answer to the nearest penny.

Reference no: EM13831183

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