Assume that the following data describe the condition of the commercial banking system:
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Assume that the following data describe the condition of the commercial banking system:
Value Total reserves: $90 billion
Transactions deposits: $800 billion
Cash held by public: $80 billion
Reserve requirement 0.10
money supply (M1) = 880 billion
The banks are not fully utilizing their lending capacity
What would happen to the money supply initially (before any lending takes place) if the public deposited another $40 billion in cash in transactions deposits?
Assuming the $40 billion cash is not new money in the system, then M1 will not change
How much would the total lending capacity of the entire banking system increase after such a portfolio switch billion
e) How large would the money supply be if the banks fully utilized their lending capacity? money supply will rise to billion
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