The XYZ National bank has reserves of $20,000 and demand deposits of $100,000. The reserve requirement is 10%. Assume households deposit $5000 in currency into the bank adding to its reserves. What are the bank’s actual and required reserves? What action can the bank take and why would it do this? Over time what could be expected to happen to the money supply? Explain.
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The XYZ National bank has reserves of $20,000 and demand deposits of $100,000. The reserve requirement is 10%. Assume households deposit $5000 in currency into the bank adding to its reserves. What are the bank’s actual and required reserves? What action can the bank take and why would it do this? Over time what could be expected to happen to the money supply? Explain.
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