Happy Bank starts with $\$ 200$ in bank capital. It then takes in $\$ 800$ in deposits. It keeps $12.5$ percent ( $1 / 8$ th) of deposits in reserve. It uses the rest of its assets to make bank loans.

What is Happy Bank's leverage ratio?

Happy Bank starts with $\$ 200$ in bank capital. It then accepts $\$ 800$ in deposits. It keeps $12.5$ percent ($1/8$th) of deposits in reserve. It uses the rest of its assets to make bank loans.

What is Happy Bank's leverage ratio?

Which of the following are considered money in the U.S. economy? Which are not? Explain your answer by discussing each of the three functions of money.

a Picasso painting

Which of the following are considered money in the U.S. economy? Which are not? Explain your answer by discussing each of the three functions of money.

a Mexican peso

Which of the following are considered money in the U.S. economy? Which are not? Explain your answer by discussing each of the three functions of money.

a plastic credit card

Beleaguered State Bank (BSB) holds $\$ 250$ million in deposits and maintains a reserve ratio of $10$ percent.

Explain what effect BSB's action will have on other banks.

Why don’t banks hold 100 percent reserves? How is the amount of reserves banks hold related to the amount of money the banking system creates?

What is the theory of liquidity preference? How does it help explain the downward slope of the aggregate demand curve?

The Fed conducts a $10 million open-market purchase of government bonds. If the required reserve ratio is 10 percent, what is the largest possible increase in the money supply that could result? Explain. What is the smallest possible increase? Explain.

You take $100 you had kept under your mattress and deposit it in your bank account. If this$100 stays in the banking system as reserves and if banks hold reserves equal to 10 percent of deposits, by how much does the total amount of deposits in the banking system increase? By how much does the money supply increase?

Happy Bank starts with $\$ 200$ in bank capital. It then accepts $\$ 800$ in deposits. It keeps $12.5$ percent ($1/8$th) of deposits in reserve. It uses the rest of its assets to make bank loans.

Suppose that $10$ percent of the borrowers from Happy Bank default and that these bank loans become worthless. Show the bank's new balance sheet.

Beleaguered State Bank (BSB) holds $\$ 250$ million in deposits and maintains a reserve ratio of $10$ percent.

Now suppose that BSB's largest depositor withdraws $\$ 10$ million in cash from her account and that BSB decides to restore its reserve ratio by reducing the amount of loans outstanding. Show its new T-account.

Beleaguered State Bank (BSB) holds $\$ 250$ million in deposits and maintains a reserve ratio of $10$ percent.

Why might it be difficult for BSB to take the action described in part (b)? Discuss another way for BSB to return to its original reserve ratio.

Your uncle repays a $100 loan from Tenth National Bank (TNB) by writing a$100 check from his TNB checking account. Use T-accounts to show the effect of this transaction on your uncle and on TNB. Has your uncle’s wealth changed? Explain.