National Bank loans
National Bank loans: Suppose that First National Bank, Second National Bank, and Third National Bank have zero
excess reserves. The required reserve ratio is 20%. The Federal Reserve buys a government
bond worth $1.5 million from John, a client of First National Bank. He deposits the money into
his checking account at First National Bank.
Tasks:
Suppose that First National Bank loans out all its new excess reserves to Nancy, who
immediately uses the funds to write a check for Mark. Mark deposits the funds immediately
into his checking account at Second National Bank. Then, Second National Bank lends out all its
new excess reserves to Kyle, who writes a check for Amy, who deposits the money into her
account at Third National Bank. Third National Bank lends out all its new excess reserves as
well.
Fill in the following table to show the effect of this ongoing chain of events at each of the banks.
Enter each answer to the nearest penny.
Bank
Increase in
Demand Deposits
Increase in Required
Reserves
Increase in
Loans
First National Bank
Second National Bank
Third National Bank
Remember to adhere to APA guidelines, standards, and formatting.
Submission Requirements:
Submit the analysis for grading in approximately two before the end of the
week.
.
Format: Microsoft Word
.
Font: Arial, 12-point, double-spaced
Evaluation Criteria:
Criteria
Points Assigned
Points Earned
Did you answer all parts of the question properly?
80
Did you use appropriate grammar and spelling, and cited
references, where applicable?
15
Did you adhere to APA guidelines, standards, and
formatting?
5
…………………….Answer preview…………………….
Suppose that First National Bank loans out all its new excess reserves to Nancy, who immediately uses the funds to write a check for Mark. Mark deposits the funds immediately into his checking account at Second National Bank. Then, Second National Bank lends out all its new excess reserves to Kyle…………………..
APA
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