Determine discount rate in the banking system

Reference no: EM1374318

[A] Third National Bank is fully loaned up with reserves of $20,000 and demand deposits is similar to $100,000. The reserve ratio is 20 percent. Households deposit $5,000 in currency into the bank. How much excess reserves does the bank now have, and what is the maximum amount of new money that can be created in the banking system as a result of this deposit? Show all work.

[B] Determine the discount rate in the banking system, and describe how the Fed manipulates this rate in order to achieve macroeconomic objectives.

Reference no: EM1374318

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