Identify the current required reserves and excess reserves

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For each of the following transactions, assume the bank has initial demand deposits of $100,000 and the reserve requirement is 5%.

A. Identify the current required reserves and excess reserves. Explain.

B. If the bank decides to hold $30,000 in reserves, what is the maximum amount of money that can be created? Explain.

C. Instead of transaction B (above), assume the Federal Reserve buys $50,000 worth of securities from the bank, what is the maximum amount of money that can be created by this single transaction? Explain.

Reference no: EM13241868

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