Use the balance sheet for the Bank of the Economists (where all economists go to

Question

Use the balance sheet for the Bank of the Economists (where all economists go to bank) to answer the questions below. Assume the required reserve ratio is 20%. Bank of the Economists Balance Sheet Assets Liabilities and net worth Reserves Loans Treasury securities $100,000 125,000 Liabilities: $375,000 Checking deposits $500,000 $100,000 A. What are the Bank of the Economists' required reserves? S B.What are its current excess reserves? (Enter zero if it has no excess reserves.) s C. What is the maximum amount in additional loans that can the bank can make? (Enter zero if it cannot make any additional loans at this time.) S

Explanation / Answer

(A) Required reserves ($) = Checking deposit x Required reserves ratio = 500,000 x 20% = 100,000

(B) Excess reserves ($) = Total reserves - Required reserves = 125,000 - 100,000 = 25,000

(C) Maximum additional loan the bank can make ($) = Excess reserves = 25,000

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