Answer:
Check the following calculations
Explanation:
(a)
Actual Reserves = Vault cash + Deposits at the Federal Reserve
Actual Reserves = $200 + $300
Actual Reserves = $500
The actual reserves are $500.
Calculate Required Reserves -
Required Reserves = Deposits * Required reserve ratio
Required Reserves = $3500 * 0.10 = $350
The required reserves are $350.
Calculate Excess Reserves -
Excess reserves = Actual reserves - Required Reserves
Excess reserves = $500 - $350 = $150
The Excess reserves are $150.
(b)
A bank can increase the amount of its loan by the amount of excess reserves it held.
This bank has excess reserves of $150.
So, this bank can increase its loans by $150.
(c)
Calculate Money multiplier -
Money multiplier = 1/Required reserve ratio = 1/0.10 = 10
The money multiplier is equal to 10.
(d)
Calculate total expansion of loan by entire banking system -
Total expansion = Increase in loan by individual bank * Money multiplier
Total expansion = $150 * 10 = $1,500
The entire banking system can expand their loans by $1,500.
(e)
The new wealth directly created from this expansion of deposits is equal to the quantum of expansion in deposits.
The deposits has expanded by $1,500.
So, new wealth directly created from this expansion of deposits is $1,500.
