Assume that the following data describes the condition of the commercial banking system
Total Reserves $100 Billion
Transactions Deposits $800 Billion
Cash held by public $100 Billion
Reserve requirements 0.125
(a) Are the banks fully utilizing their lending capacity? Explain.
(b) What would the lending capacity of the banking system be after such a portfolio switch?
(c) How large would the money supply be if the banks fully utilized their lending capacity?