Suppose banks and depository institutions receive additional excess reserve in the amount of Rs. 200,000 and the central bank has fixed 5 percent…
BBS Management of Financial Institutions · 2078 · Solved Question with Answer
Suppose banks and depository institutions receive additional excess reserve in the amount of Rs. 200,000 and the central bank has fixed 5 percent reserve requirement on transaction deposits. Further, suppose all depository institutions continually make loans with this excess reserve.Suppose banks and depository institutions receive additional excess reserve in the amount of Rs. 200,000 and the central bank has fixed 5 percent reserve requirement on transaction deposits. Further, suppose all depository institutions continually make loans with this excess reserve.
a. Calculate the transaction deposit multiplier
b. Calculate the maximum amount of new deposits (loans) that all depository institutions can create?
c. If excess reserve declines from Rs. 200,000 to Rs. 150,000, what will happen to deposits?