Prepare a two- to three-page analysis by answering the questions below.
Assume that the Bank of Ecoville has the following balance sheet and the Fed has a 10% reserve requirement in place:
BALANCE SHEET FOR ECOVILLE INTERNATIONAL BANK
Cash $33,000 Demand deposits $99,000
Now assume that the Fed lowers the reserve requirement to 8%.
What is the maximum amount of new loans that this bank can make?
Assume that the bank makes these loans. What will the new balance sheet look like?
By how much has the money supply increased or decreased?
Explain your answers.
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