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AP Macroeconomics Pol 2 A a Define Key Terms Related to the Banking System and the Expansion of the Money Supply B Explain How the Banking System Creates Questions

Use bank balance sheets, reserve requirements, and the money multiplier to calculate lending, deposit expansion, and changes in the money supply.

Syllabus
Effective Fall 2022
Course
AP Macroeconomics

Exam points

  • classify reserves and loans as bank assets and demand deposits as liabilities on a balance sheet
  • calculate the required reserve ratio or required reserves from reserves and deposits
  • calculate excess reserves and the maximum new loan an individual bank can make
  • update reserves, deposits, required reserves, and excess reserves after a deposit or withdrawal
  • calculate the simple money multiplier as the reciprocal of the required reserve ratio

AP Macroeconomics Pol 2 A a Define Key Terms Related to the Banking System and the Expansion of the Money Supply B Explain How the Banking System Creates Questions question 1

[Maximum number: 1]

Assume that commercial banks must hold a minimum of 20% of their deposits as reserves. Now suppose that the central bank of the country sells $100,000 of government bonds to commercial banks.

Calculate the maximum change and state the direction of change in the money supply as a result of the central bank bond sale. Show your work.

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