ECONOMICS 201 TAKE HOME TEST lI Use the following balance sheet for the ABC Bank

Question

ECONOMICS 201 TAKE HOME TEST lI Use the following balance sheet for the ABC Bank in answering questions required reserve ratio is 20%. ASSETS LIABILITIESANDNELWORTH Reserves. Demand Deposits.200.000 Stocks.... 80.000 .. 200,000 Securities. 70,000 Properties.. 200.000 $ 400.000 S 400.000 What are the: a. required reserves b. excess reserves c. existing loan capability d. potential for total money supply if we include all banks? 2 Assume the bank has a check cleared against it for $50.000. What are the a demand deposits b. reserves After the transaction descri a- required reserves b. excess reserves c. existing loan capability If the Fed buys securities from the ABCB in the amount of$20.000, what will the effect 3. pleted, what are the bank's: be on the nation's money supply? Answer

Explanation / Answer

Q1
Answer
a)
required reserves=deposits*required reserve ratio=200000*0.2
=40000
b)
excess reserves=actual reserves-required reserves
=80000-40000=40000
c)
existing loan capacity=excess reserves=40000
d)
the potential for total money supply if we should include all banks
=loan capacity/required reserves=400000/0.2=200000

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