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Explain why you think the Federal Reserve Bank tracks M1 and M2 Humongous Bank is the only bank in the economy The people in this economy have $20 million in money and they deposit all their

1. Explain why you think the Federal Reserve Bank tracks M1 and M2.

 

2. Humongous Bank is the only bank in the economy. The people in this economy have $20 million in money, and they deposit all their money in Humongous Bank.
a. Humongous Bank decides on a policy of holding 100% reserves.
Draw a T-account for the bank.

b. Humongous Bank is required to hold 5% of its existing $20 million as reserves, and to loan out the rest.

Draw a T-account for the bank after this first round of loans has been made.

c. Assume that Humongous bank is part of a multibank system. How much will money supply increase with that original loan of $19 million?

Apr 29 2020 View more View Less

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