Macroeconomics

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Directions

Instead of a discussion board, this week you will submit an individual written assignment that illustrates the role commercial banks play in the creation of money. Assume that, initially, the central bank of an economy puts $5,000 into circulation and commercial banks want to hold reserves of 20 percent of deposits. Further assume that the public holds no currency. Show and discuss the consolidated balance sheets of the economy’s commercial banks for each of the following instances.

  1. After initial deposits (compare to Table 9.2 in your textbook)
  2. After one round of loans (compare to Table 9.3 in your textbook)
  3. After the first redeposit of dollars (compare to Table 9.4 in your textbook)
  4. After two rounds of loans and redeposits (compare to Table 9.5 in your textbook)
  5. What are the final values of bank reserves, loans, deposits, and the money supply (compare to Table 9.6 in your textbook)?

Response Parameters

  • typed, double spaced, and use 12-point font, thesis, conclusion
 
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