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Problems

# Problems

29.

If you take $100 out of your piggy bank and deposit it in your checking account, how did M1 change? Did M2 change? 30. A bank has deposits of$400. It holds reserves of $50. It has purchased government bonds worth$70. It has made loans of $500. Set up a T-account balance sheet with assets and liabilities, and calculate the bank’s net worth. 31. Humongous Bank is the only bank in the economy. The people in this economy have$20 million in money, and they deposit all of it in Humongous Bank.

1. Humongous Bank decides on a policy of holding 100 percent reserves. Draw a T-account for the bank.
2. Humongous Bank is required to hold 5 percent 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. 3. Assume that Humongous bank is part of a multibank system. How much will the money supply increase with that original loan of$19 million?