a How large is the money supply (M1)? billion b Are the banks fully utilizing their lending capacity? Banks currently have billion in excess reserves. Now assume that the public deposited another $15 billion in cash in transactions accounts. c. What would happen to the money supply initially (before any lending takes place)? Assuming the $15 billion in cash is not new money in the system, M1 will d. How much would the total lending capacity of the banking system be after this portfolio switch? e. How large would the money supply be if the banks fully utilized their lending capacity? billion f What three steps could the Fed take to offset the potential growth in M1? reserve requirements the discount rate bonds Total reserves: Transactions deposits: $35 billion Cash held by public: $250 billion Required reserve ratio: 0.05
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a How large is the money supply (M1)- billion b Are the banks fully ut.docx
1. a How large is the money supply (M1)? billion b Are the banks fully utilizing their lending
capacity? Banks currently have billion in excess reserves. Now assume that the public deposited
another $15 billion in cash in transactions accounts. c. What would happen to the money supply
initially (before any lending takes place)? Assuming the $15 billion in cash is not new money in
the system, M1 will d. How much would the total lending capacity of the banking system be
after this portfolio switch? e. How large would the money supply be if the banks fully utilized
their lending capacity? billion f What three steps could the Fed take to offset the potential growth
in M1? reserve requirements the discount rate bonds Total reserves: Transactions deposits: $35
billion Cash held by public: $250 billion Required reserve ratio: 0.05
