How much would the economy money supply increase

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Reference no: EM132855856

Suppose that the T-account for First National Bank is as follows:

The First National Bank

Assets

Liabilities

Reserves $100,000

Deposits $500,000

Loans 400,000

Problem A) If the Fed requires banks to hold 5 percent of deposits as reserves, how much in excess reserves does First National Bank now hold?

Problem 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: EM132855856

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