The following is the balance sheet of the Bank of Your Class Assets Liabilities
ID: 1109480 • Letter: T
Question
The following is the balance sheet of the Bank of Your Class
Assets
Liabilities
Cash $12,000
Deposits with Fed $10,000
Loans $278,000
Deposits $240,000
Capital $60,000
Total $300,000
Total $300,000
Assume the RRR is 8%
Calculate the following for the Bank of Your Class
Required Reserves=
Actual Reserves=
Excess Reserves=
New Loan=
If the new loan created by the Bank of Your Class is being deposited back with this bank and there is no money drain, what would be the excess reserves of this bank after the deposit has been made and how much new loan can this bank create after the deposit?
Repeat the same exercise for the Bank of Your Class if the RRR was changed to 5% by the Fed
Suppose that a bank has $60,000 in checkable account with the required ratio of 10%. If this bank is holding $4,000 in excess reserve:
What are the reserves?
If RRR is changed from 10% to 8%, what are its excess reserves?
How much new loan can this bank create when RRR is 8%
How much new loan can the entire banking system create when RRR is 8%?
Suppose a bank gets a new deposit of $ 80,000 of new money cash. This bank creates a new loan of $64,000.
What is the required reserve ratio?
How much new loan will the entire banking system be able to create?
Can someone explain this step by step please and thank you
Assets
Liabilities
Cash $12,000
Deposits with Fed $10,000
Loans $278,000
Deposits $240,000
Capital $60,000
Total $300,000
Total $300,000
Explanation / Answer
1.
Required reserve = required reserve ratio*deposits = 8%*240000 = $19200
Actual Reserve = cash + deposits with the Federal Reserve = 12000 + 10000 = $22000
Excess Reserve = Actual reserve – Required reserve = 22000 – 19200 = $2800
New loans =$2800 (the excess reserve can be issued at new loans)
2.
The new loan of $2800 is deposited back to the bank.
Excess Reserve = New deposit - required reserve on the new deposit
Excess Reserve = 2800 – 8%*2800 = $2576
A new loan of $2576 can now be created by the bank.
3.
If required reserve ratio is 5%.
Required reserve = required reserve ratio*deposits = 5%*240000 = $12000
Actual Reserve = cash + deposits with the Federal Reserve = 12000 + 10000 = $22000
Excess Reserve = Actual reserve – Required reserve = 22000 – 12000 = $10000
New loans =$10000 (the excess reserve can be issued at new loans)
The new loan of $10000 is deposited back to the bank.
Excess Reserve = New deposit - required reserve on the new deposit
Excess Reserve = 10000 – 5%*10000 = $9500
A new loan of $9500 can now be created by the bank.
4.
Now the bank has $60000 as checkable account deposits
Excess reserve = $4000
Total reserve = required reserve + excess reserve = 60000*10% + 4000
Total reserve = $10000
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