Ask Question
BusinessBusiness
27 May, 02:55

On January 10, 2017, a man in Lebanon, Virginia, frustrated with the DMV bureaucracy, paid his DMV bill with 300,000 pennies that he carted into the DMV office in five wheelbarrows. The DMV had to count all these pennies and deposit them into the DMV bank account. After the DMV deposit and assuming a reserve requirement of 6 percent, calculate the initial change in Instructions: Enter your responses as a whole number. a. Money supply. b. Deposits. c. Total reserves. d. Excess reserves. e. Calculate the cumulative change in the banking system in lending capacity

+4
Answers (1)
  1. 27 May, 05:25
    0
    a. The initial change in the money supply would be $0

    b. The initial change in deposits would be $3,000.

    c. Total reserves will also increase by $3,000.

    d. The excess reserves is $2,820.

    e. Cumulative change = $47,009

    Explanation:

    (a) Currency in circulation and bank deposits are both parts of the money supply.

    So, when a man paid DMV with 300,000 pennies or $3,000 which DMV deposited into its account then in that case currency in circulation decreased by $3,000 and bank deposits increase by $3,000.

    Since one component of the money supply is increasing while other is decreasing and that also by the same amount there will be no change in the money supply.

    So, the initial change in the money supply would be $0

    (b) DMV has deposited $3,000 into its bank account.

    So,

    Deposits will increase by $3,000.

    Thus,

    The initial change in deposits would be $3,000.

    (c) Total reserves increases in the equal amount of the increase in deposits.

    Deposits have increased by $3,000.

    So,

    Total reserves will also increase by $3,000.

    Thus,

    The initial change in total reserves would be $3,000.

    (d) New deposit created = $3,000

    Reserve requirement = 6 percent

    Required reserves created = $3,000 * 0.06 = $180

    Excess reserves = New deposit - Required reserves = $3,000 - $180 = $2,820

    The excess reserves is $2,820.

    (e) Reserve requirement = 6% or 0.06

    Money multiplier = 1/Reserve requirement = 1/0.06 = 16.67

    Calculate the cumulative change in the banking system in lending capacity -

    Cumulative change = Excess reserves * Money multiplier

    Cumulative change = $2,820 * 16.67 = $47,009

    The cumulative change in the banking system in lending capacity would be $47,009.
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “On January 10, 2017, a man in Lebanon, Virginia, frustrated with the DMV bureaucracy, paid his DMV bill with 300,000 pennies that he carted ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers
You Might be Interested in
Marsh uses a perpetual inventory system. On December 29, Marsh, Inc. sold inventory for $5,500 on account with terms 2/10 n/30. The customer pays on January 3. What amount will Marsh record in its inventory account on December 29?
Answers (1)
Beginning work in process was $125,000. Manufacturing costs added to production for the month were $835,000. There were $200,000 of partially finished goods remaining in work in process inventory at the end of the month.
Answers (1)
Which of the following is an example of an independent, personal promotional source? Group of answer choices A Bud Light commercial on television An article on Cadillac's Escalade in the newspaper A phone call from a telemarketer informing you of
Answers (1)
A demand curve: 1. shows the relationship between income and spending. 2. shows the relationship between price and quantity supplied. 3. indicates the quantity demanded at each price in a series of prices. 4. graphs as an upsloping line.
Answers (1)
What were joint-stock companies and monopoly companies, and how did they contribute to increased trade and exploration?
Answers (1)
New Questions in Business
Header Motor, Inc., paid a $3.91 dividend last year. At a constant growth rate of 7 percent, what is the value of the common stock if the investors require a 16 percent rate of return? The value of the common stock is $ nothing.
Answers (1)
Beerbo Corporation purchased Mitter Lite Company three years ago. As a result of the acquisition, Beerbo recorded goodwill of $400,000 at that time and created the Mitter Lite Division (MLD).
Answers (1)
Ashley's Coffee Shop makes a blend that is a mixture of two types of coffee. Type A coffee costs Ashley $4.30 per pound, and type B coffee costs $5.90 per pound. This month, Ashley made 142 pounds of the blend, for a total cost of $749.80.
Answers (1)
Describe a decision you made that wasn't popular and how you handled implementing it for entry level
Answers (1)
Zilly Co. predicts sales of $176,000 for June. Zilly pays a sales manager a monthly salary of $6,900 and a commission of 7% of that month's sales dollars. Prepare a selling expense budget for the month of June.
Answers (1)
Home » Business » On January 10, 2017, a man in Lebanon, Virginia, frustrated with the DMV bureaucracy, paid his DMV bill with 300,000 pennies that he carted into the DMV office in five wheelbarrows.
Sign Up Forgot Password?