Suppose that Big Bucks Bank has the simplified balance sheet shown below and tha

Question

Suppose that Big Bucks Bank has the simplified balance sheet shown below and that the reserve ratio is 10 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 bank

Assets Liabilities and net worth (1) (2) (1' ) (2' )
Reserves
$22,000
   $
$ Checkable deposits $ 100,000 $ $
Securities
38,000
    $
$
Loans
40,000
    $
$

Explanation / Answer

a. Reserves - Required Reserves = 22000 - 0.1 * 100000 = 12000

Assets

Liabilities and Net Worth

1

2

1'

2'

Reserves

22000

10000

Checkable Deposits

100000

100000

Securities

38000

38000

Loans

40000

52000

b. Change in money supply = 12000/0.1 = 120000

c.

Assets

Liabilities and Net Worth

1

2

1'

2'

Reserves

22000

10000

22000

Checkable Deposits

100000

100000

100000

Securities

38000

38000

38000

Loans

40000

52000

40000

d. Reserves - Required Reserves = 22000 - 0.05 * 100000 = 17000

Assets

Liabilities and Net Worth

1

2

1'

2'

Reserves

22000

5000

Checkable Deposits

100000

100000

Securities

38000

38000

Loans

40000

57000

Change in money supply = 17000/0.05 = 340000

Assets

Liabilities and Net Worth

3

4

3'

4'

Reserves

22000

5000

22000

Checkable Deposits

100000

100000

100000

Securities

38000

38000

38000

Loans

40000

57000

40000

Assets

Liabilities and Net Worth

1

2

1'

2'

Reserves

22000

10000

Checkable Deposits

100000

100000

Securities

38000

38000

Loans

40000

52000

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