Reserve Requirement
* The FED requires banks to always have some money readily available to meet consumers demand for cash.
* The amount, set by the FED, is the required reserve ratio.
* The required reserve ration is the % of demand deposits (checking account balances) that must not be loaned out.
* Typically the required reserve ratio is 10%
The three types of Multiple Deposit Expansion Question
1. Type 1: calculate the initial change in excess reserves (a.k.a. The amount a single bank can loan from the initial deposit)
2. Type 2: calculate the change in loans in the banking system
3. Type 3: calculate the change in the money supply (sometimes type 2 and type 3 will have the same result (i.e. No Fed involvement...
https://m.youtube.com/watch?v=caWQxhsQm1I (watch this video about the multiple deposit expansion, enjoy!
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