suppose that big bucks bank has the simplified balance sheet shown below.  The reserve ratio is 20 percent.

What is the maximum amount of new loans that big bucks bank can make?

Suppose that Big Bucks Bank has the simplified balance sheet shown below. The reserve ratio is 20 percent.

a. What is the maximum amount of new loans that Big Bucks Bank can make? $.

Show in columns 1 and 1' how the bank's balance sheet will appear after the bank has lent this additional amount.

b. By how much has the supply of money changed? $.

c. How will the bank’s balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against the bank? Show the new balance sheet in columns 2 and 2'.

d. Using the original figures, revisit questions a, b, and c based on the assumption that the reserve ratio is now 15 percent. What is the maximum amount of new loans that this bank can make? $.

Show in columns 3 and 3' (below) how the bank’s balance sheet will appear after the bank has lent this additional amount.

By how much has the supply of money changed? $.

How will the bank’s balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against the bank? Show the new balance sheet in columns 4 and 4' in the table above.

Suppose the simplified consolidated balance sheet shown below is for the entire commercial banking system and that all figures are in billions of dollars. The reserve ratio is 25 percent. Instructions: Refer to the balance sheet below. Enter your answers as whole numbers. a. What is the amount of excess reserves in this commercial banking system? What is the maximum amount the banking system might lend? Show in columns 1(a) and 1'(a) how the consolidated balance sheet would look after this amount has been lent. What is the size of the monetary multiplier? b. Using the original figures, answer the questions in part a assuming the reserve ratio is 20 percent. What is the amount of excess reserves in this commercial banking system? What is the maximum amount the banking system might lend? Show in columns 1(b) and 1'(b) how the consolidated balance sheet would look after this amount has been lent. What is the monetary multiplier? What is the resulting difference in the amount that the commercial banking system can lend when the required reserve ratio is 20 percent rather than 25 percent? .

Now assume that the Fed lowers the reserve requirement to 8%.

What is the maximum amount of new loans that this bank can make?

Assume that the bank makes these loans. What will the new balance sheet look like?

By how much has the money supply increased or decreased?

If the money multiplier is 5, how much money will ultimately be created by this event?

If the Fed wanted to implement a contractionary monetary policy using reserve requirements, how would that work?