NEED HELP WITH EACH QUESTION BELOW 1) Again, assuming the balance sheet for Last
ID: 1117189 • Letter: N
Question
NEED HELP WITH EACH QUESTION BELOW
1) Again, assuming the balance sheet for Last National Bank as the starting point, Marsha receives her weekly paycheck via direct deposit to her account at LNB. Her paycheck is $1,000. What is the new excess reserves?
2) Refer to the balance sheet for The River Bank. Total Reserves for the bank are:
3) Refer to the balance sheet for The River Bank. If we assume there is a 10% required reserve ratio, the excess reserves must be:
4) Let’s assume that Jon has $1,000 in currency that he has been carrying around. Jon decides this is unsafe and deposits the full $1000 into his checking account at The River Bank. By how much has total M1 in the country changed by this transaction alone?
. Last National Bank . Assets Liabilities and Capital . Required Reserves $30,000 Checkable Deposits $200,000 . Excess Reserves $0 Net Capital $10,000 . Loans ? . Total reserves: . Required Reserve Ratio: . . . . The River Bank(marketing slogan: “we specialize in liquidity”) . Assets Liabilities and Capital . Deposits at The Fed $40,000 Checkable Deposits $500,000 . Cash on Hand (Vault cash) $10,000 Securities Sold/Issued $10,000 . Securities Owned $150,000 Net Capital $10,000 . Loans $300,000 . Other Long-term Assets $20,000 . Total Reserves On Hand: . Required Reserves: . Excess Reserves:
Explanation / Answer
1). the Reserce requirement Ratio (m) = Reserve requirement / checkable deposit = 30,000/2,00,000 = 3/20
so m = 0.15 and Loans = (2,00,000 + 10,000 - 30000) = 1,80,000
Marsha receives her weekly paycheck via direct deposit to her account at LNB. Her paycheck is $1,000
M = 0.15 same and total deposit = 2,00,000 + 1000
RR = 0.15*1000 = 150
Excess Reserves = 1000- 150 = $850
2). Total reserves in the River Bank = deposits + currency = 40,000 + 10,000 = 50,000
3). Reserve Requirement = m*checkable deposits = 5,00,000*0.10 = 50,000
Tota Reserves - RR = Excess Reserves (ER)
ER = 50,000 -50,000 = 0
4). M1 = Cash in Hand + deposits at the Fed + Other Checkable deposits
M1= 10,000 + 40000 + 500000 = $5,50,000
John decides to deposit $1000 into his checkable account, the resulatant change in money supply would be
(1/m) * initial change in excess reserves
RR = 0.10 * $1000 = $100
ER = 1000 - 100 = $900
Resultant change in money supply = (1/0.10)*900 = $9000
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