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Calculate the amount of dd

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Reference no: EM133125247

There is an initial deposit of $1,000 in demand deposit, and the required reserve ratio is 15%. Assume all excess reserve is loaned out by the Bank.

(a). Calculate the amount of DD, RR, and loan in the first round of money creation process.

(b). Calculate the total increase in M1 in the long run? Double check your answer with the calculations of total increase in required reserves and loans.

(c). Assume there are two leakages in the first round only of the expansion: people keep $100 of cash for daily expenses and deposit the rest to their banks, and banks keep extra $75 in addition to the required reserves. Calculate the amount of DD, RR, ER and loan in the first round of money creation process with the leakages.

(d). Calculate the amount of DD, RR, and loan in the second round of money creation process continued from (c).

(e). In the long run, calculate the total increase in M1 with these leakages. Calculate the multiplier with these leakages?

Reference no: EM133125247

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