By how much would the economys money supply increase

Reference no: EM13231432

Suppose the balance sheet for First National Bank is as follows:

Assets Liabilities

Reserves 100,000 Deposits 500,000

Loans 400,000

a) If the Fed requires banks to hold 5% of deposits as reserves, how much in excess reserves does First national now hold?

b) Assume that all other banks hold only the required amount of reserves. If First national decides to reduce its reserves to only the required amount, by how much would the economy's money supply increase?

Reference no: EM13231432

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