Economics 1002 Fall 2017 ECONOMICS 1002 INTRODUCTION TO MACROECONOMICS Fall 2017

Question

Economics 1002 Fall 2017 ECONOMICS 1002 INTRODUCTION TO MACROECONOMICS Fall 2017 Lecture 27 Week 11 Extra Credit Opportunity due before the Module IV exam on November 20, 2017 NAMES The First Bank of Econ 1002 - a member bank of the Federal Reserve System -starts out with the following balance sheet: Assets Liabilities Reserves $5,000 Deposits $20,000 Loans $15,000 The reserve ratio is 10%. rreuived reser The bank's economist, Vu, is very conservative. He wants the bank to keep more on reserve than the Fed requires. Out of the $5,000 on reserve, 2,000is required and S) ooo - 2,000 = 310 3000is excess that the bank can loan out.

Explanation / Answer

Initial balance sheet has following details

Now the excess reserve is 3000 which Arushi has decides to loan out. As reserve requirement is 2000.

Vu has withdrawn his amount so that will decrease bank's liability by $1200 and it will balanced by decrease in reserves.

Since deposits are $18800, so bank's reserve ratio is not in compliance with requirement.

18800 * 0.10 = 1880
1880 - 800 = 1080

Bank will need to borrow $1080 to comply with reserve requirement.

Assets Liabilities Reserves - $5000 Deposits - $20000 Loans - $15000

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