Question

Now, suppose first main street bank loans out all of its new excess reserves to becky, who immediately uses the funds to write a check to alex. alex deposits the funds immediately into his checking account at second republic bank. then second republic bank lends out all of its new excess reserves to hubert, who writes a check to eileen, who deposits the money into her account at third fidelity bank. third fidelity lends out all of its new excess reserves to kate in turn.

Answer 1

The question relates to the money multiplier effect in a multi-bank system, where an initial excess reserve leads to a multiplying expansion of the money supply through repeated cycles of lending and deposits across various banks.

Step-by-step explanation:

The scenario you've described is an example of how the money multiplier operates within a multi-bank system. When Singleton Bank lends out its excess reserves, it begins a process where money is repeatedly loaned out and deposited at various banks. With each new deposit and subsequent loan, the money supply expands. For instance, Singleton Bank lends $9 million, which becomes a deposit at First National Bank, increasing its reserves by the same amount. First National is then required to keep 10% as required reserves, in this case, $900,000, but can lend out the remaining 90% or $8.1 million. This process continues across different banks, greatly expanding the total money supply in the economy due to the initial loan being re-deposited and re-loaned multiple times.

Answer 2

The answer is when second republic bank lends out all of its new excess reserves to hubert