The Money Multiplier Process
Initial
deposit
($100)
Loan
Loan
Loan
etc.
University
Bank
Deposit
Bank
#2
Bank
Deposit
#3
Deposit
Bank
#4
Excess reserves: $25
Required reserves: $75
Excess reserves: $6.25
Required reserves: $18.75
Excess reserves: $1.56
Required reserves: $4.69
Excess reserves: $0.39
Required reserves: $1.17
Instructions: Round your responses to two decimal places.
a. What volume of loans can the banking system in the figure support?
$
b. If the reserve requirement were 50 percent rather than 75 percent, what would the system's lending capacity be?
+A
100
