Suppose the simplified consolidated balance sheet shown in the right column is f

Question

Suppose the simplified consolidated balance sheet shown in the right column is for the entire commercial banking system and that all figures are in billions of dollars. The reserve ratio is 25 percent.

What is the amount of excess reserves in this commercial banking system? : $ 12 billion What is the maximum amount the banking system might lend? $ 150 billion 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? 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? $ billion What is the maximum amount the banking system might lend? $ billion 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?

Explanation / Answer

a. The reserve ratio is 25 percent

Required reserves = Actual reserves - Excess reserves
Excess reserves =Actual reserves- Required reserve ratio*depoits

Excess reserves = 62-25%*200= 12 billion

Maximum amount the banking system might lend = Total assets - Required reserves

Maximum amount the banking system might lend = 200-25%*200=150 billion

Reserve $50 Checkable depoits $200

Securities $38

Loans $112

money multiplier = 1/25%= 4

b

The reserve ratio is 20 percent

Required reserves = Actual reserves - Excess reserves
Excess reserves =Actual reserves- Required reserve ratio*depoits

Excess reserves = 62-20%*200= 22 billion

Maximum amount the banking system might lend = Total assets - Required reserves

Maximum amount the banking system might lend = 200-20%*200=160 billion

Reserve $40 Checkable depoits $200

Securities $38

Loans $122

money multiplier = 1/20%= 5

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