Suppose First Main Street Bank, Second republic bank, and third fidelity bank all have zero excess reserves. The required ratio
is 20%. The Federal Reserve buys a government bond worth $1,500,000 from Jack, a client of First Main Street Bank. He deposits the money in his checking account at First Main Street Bank.?? On the Assets side of First Main Street Bank's T-Accoutns (before the bank makes any new loans), this (increases/decreases) First Main Street Bank's (building and furniture/net worth/demand deposits/reserves/loans) by (1,500,000/300,000/3,000,000/1,200,000). On the Liabilities side First Main Street Bank's balance sheet, (increases/decreases) First Main Street Bank's (building and furniture/net worth/demand deposits/reserves/loans) by (1,500,000/300,000/3,000,000/1,200,000). Because the required reserve ratio is 20%, the $1,500,000 deposit (increases/decreases) First Main Street Bank's excess reserves by (1,200,000/0/900,000/300,000), and (decreases/increases) First Main Street Bank's required reserves by (1,200,000/0/900,000/300,000), Now, suppose First Main Street Bank loans out all of its new excess reserves to Madeline, who immediately uses the finds to write a check to Jim. Jim deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to stan, who write a check to Hillary, who deposits the money in her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess reserves as well. What is the
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