Reference no: EM132456797
Let's watch a bank create money. Last Wednesday, the Bank of Numenor opened for business. The first customer, Edith, walked in the door with 100 pieces of silver to deposit in a new checking account. The second customer, Max, walked in the door a few minutes later, asking to borrow 50 pieces of silver for a week. The bank lent Max the silver. Just to keep things simple, assume these are the only financial transactions in Numenor. And just to be clear: silver pieces are either currency (in circulation) or reserves, but cannot be both at the same time. Silver in Max or Edith's hands is currency, while silver in the bank is reserves. Assume that there are no other reserves or currency in the economy.
How much "money" is there in the Numenor economy before Edith walks into the bank
Monetary base = Thalers, M1 = Thalers
How much "money" is there in the Numenor economy after Edith makes her deposit, but before Max walks in for his loan?
Monetary base = Thalers, M1 = Thalers
How much "money" is there in the Numenor economy after the Bank makes Max the loan
Monetary base = Thalers, M1 = Thalers