1. The Third National Bank has reserves of $20,000 and

| February 14, 2018

1. The Third National Bank has reserves of $20,000 andcheckable deposits of $100,000. The reserve ratio is 20percent. Households deposit $5000 in currency into thebank that is added to reserves. What level of excess reservesdoes the bank now have?2. Suppose again that the Third National Bank has reserves of$20,000 and checkable deposits of $100,000. The reserveratio is 20 percent. The bank now sells $5000 in securitiesto the Federal Reserve Bank in its district, receiving a $5000increase in reserves in return. What level of excess reservesdoes the bank now have? Why does your answer differ (yes,it does!) from the answer to question 9?

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