Assets
Liabilities
Required Reserves
$40,000
Checkable Deposits
$200,000
Excess Reserves
$25,000
Government Bonds
$100,000
Loans
$30,000
Building & Fixtures
$15,000
Owner's Equity
$10,000
1. Calculate the required reserve ratio. (Show your work)
2. Assume that Pam wants to borrow money to pay for a new car from Sharpeland Bank.
A. What is the maximum amount that Sharpeland Bank can loan out if it wants to keep all of its bonds?
B. What is the maximum amount that the banking system can create given the balance sheet above?
3. Assume instead that Michael withdraws $10,000 in cash from his checking account at Sharpeland.
A. By how much will Sharpeland Bank's reserves change based on Michael's withdrawal? (Be specific.)
B. What is the immediate effect of the withdrawal on the M1 measure of the money supply? Explain.
C. As a result of the withdrawal, what is the new value of excess reserves for Sharpeland Bank based on the reserve requirement from part (a)?
|
Assets |
Liabilities |
||
|
Required Reserves |
$40,000 |
Checkable Deposits |
$200,000 |
|
Excess Reserves |
$25,000 |
||
|
Government Bonds |
$100,000 |
||
|
Loans |
$30,000 |
||
|
Building & Fixtures |
$15,000 |
Owner's Equity |
$10,000 |
1. Calculate the required reserve ratio. (Show your work)
2. Assume that Pam wants to borrow money to pay for a new car from Sharpeland Bank.
A. What is the maximum amount that Sharpeland Bank can loan out if it wants to keep all of its bonds?
B. What is the maximum amount that the banking system can create given the balance sheet above?
3. Assume instead that Michael withdraws $10,000 in cash from his checking account at Sharpeland.
A. By how much will Sharpeland Bank's reserves change based on Michael's withdrawal? (Be specific.)
B. What is the immediate effect of the withdrawal on the M1 measure of the money supply? Explain.
C. As a result of the withdrawal, what is the new value of excess reserves for Sharpeland Bank based on the reserve requirement from part (a)?
Related textbook solutions
Related questions
1) Imagine that Kristy deposits $10,000 of currency into her checking account deposit at Bank A and that the required reserve ratio is 20%. As a result of Kristy's deposit,
a) Bank A's reserves immediately increased by $______.
b) Bank A's required reserves increased by $______.
c) Bank A's excess reserves increased by $______.
d) Bank A can make a maximum new loan of $______.
e) Checking account deposits in the banking system as a whole (including the original deposit) could eventually increase up to a maximum of $______.
| Assets | Liabilities |
| Reserves +$4000 | Deposits +$4000 |
2) Refer to the table above. Suppose a transaction changes a bank's balance sheet as indicated in the T-account, and the required reserve ratio is 10 percent. As a result of the transaction, the bank has excess reserves of $______.
3) Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 20 percent. If the Federal Reserve reduces the required reserve ratio to 15 percent, then the bank will now have excess reserves of $______.
