Suppose that Big Bucks Bank has the simplified balance sheet shown below and tha
ID: 1099552 • Letter: S
Question
Suppose that Big Bucks Bank has the simplified balance sheet shown below and that the reserve ratio is 20 percent:
Instructions: All answers to this question should be entered as whole numbers.
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 banks balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against this bank? Show this new balance sheet in column 2 and 2'.
d. Revisit parts a., b., and c., and provide answers below 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 column 3 and 3' (below) how the banks balance sheet will appear after the bank has lent this additional amount.
By how much has the supply of money changed? $
Reserves
$22,000
$
$ Checkable deposits $ 100,000 $ $
Securities
38,000
$
$
Loans
40,000
$
$
Explanation / Answer
a. Reserves - Required Reserves = 22000 - 0.2 * 100000 = 2000
Assets
Liabilities and Net Worth
1
2
1'
2'
Reserves
22000
20000
Checkable Deposits
100000
100000
Securities
38000
38000
Loans
40000
42000
b. Change in money supply = 2000/0.2 = 10000
c.
Assets
Liabilities and Net Worth
1
2
1'
2'
Reserves
22000
20000
22000
Checkable Deposits
100000
100000
100000
Securities
38000
38000
38000
Loans
40000
42000
40000
d. Reserves - Required Reserves = 22000 - 0.15 * 100000 = 7000
Assets
Liabilities and Net Worth
1
2
1'
2'
Reserves
22000
15000
Checkable Deposits
100000
100000
Securities
38000
38000
Loans
40000
47000
Change in money supply = 7000/0.15 = 46667
Assets
Liabilities and Net Worth
3
4
3'
4'
Reserves
22000
15000
22000
Checkable Deposits
100000
100000
100000
Securities
38000
38000
38000
Loans
40000
47000
40000
Assets
Liabilities and Net Worth
1
2
1'
2'
Reserves
22000
20000
Checkable Deposits
100000
100000
Securities
38000
38000
Loans
40000
42000
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