2.42 points ratio is 25 percent Suppose the simplied consoldated balance sheet s

Question

2.42 points ratio is 25 percent Suppose the simplied consoldated balance sheet shown below is Of e entre com ercial banking system and that all fgures are n bilions of dollars. The reserve r Instructions: Refer bo 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?S Show in cclumns 1(a) and 1Ya) how the consolidaled balance sheet would leck afler ris armount has boon lent What is the size of Uhe monetary muitipier? b. Using the original figures, answer the questo in par1a assuring the reserve ratio 1s 20 percent what is the amount of excess reserve$ in this commeraal baricng syste ? bilion. What is the maximum amount the banking system might lend? Show in columns 1(p)and 1b) how the consoldaled balance sheet would lock afler tis amount has been lent What is the monetary multipier? What is the resulting difference in the amount that the commercial banking system can lend when the required reserve ratio is 20 peroent rather than 25 percent? billion, Assets Liabilities and net worth (a) b) Reserves S52 deposis $200 Securities 48 Loans 100

Explanation / Answer

a

Reserve Ratio is 25%

Therefore Required Reserve = $200 * 25% = $50

Excess Reserve = $52 - $50 = $2

Maximum amount banking system might lend = Money Multiplier * excess reserve

Here,

Money multiplier = 1 / reserve ratio

= 1 / 0.25 = 4

Maximum amount banking system might lend = 4 * $2

= $8 billion

b

Reserve Ratio = 20%

Therefore required Reserves = $200 * 20% = $40

Excess Reserve = $52 - $40 = $12

Money Multiplier = 1 / reserve ratio

= 1 / 0.20 = 5

Maximum amount banking system might lend = 5 * $12 = $60

Assets Liabilities

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