Changes in Monetary Policy
Assume that the Bank of Ecoville has the following balance sheet and the Fed has a 10% reserve requirement in place:
Balance Sheet for Ecoville International Bank
ASSETS
LIABILITIES
Cash
$33,000
Demand Deposits
$99,000
Loans
66,000
Now assume that the Fed lowers the reserve requirement to 8%.
- What is the maximum amount of new loans that this bank can make?
- Assume that the bank makes these loans. What will the new balance sheet look like?
- By how much has the money supply increased or decreased?
- If the money multiplier is 5, how much money will ultimately be created by this event?
- If the Fed wanted to implement a contractionary monetary policy using reserve requirement, how would that work?
Submission Details:
- Address the questions above, showing your calculations.
- Develop your analysis in Microsoft Excel format.
- Enter non-numerical responses in the same worksheet using textboxes.
- Name your document SU_ECO2072_W4_LastName_FirstInitial.
