The following is a bank’s balance sheet (in millions of dollars). Item Assets Li
ID: 1204607 • Letter: T
Question
The following is a bank’s balance sheet (in millions of dollars).
Item
Assets
Liabilities
Checking Deposits
30
Loans
18
Securities
7
Vault Cash
3
Deposits at Fed
2
1. What are the bank’s actual reserves? Show your computation.
2. Assume that the required reserve ratio is 10 percent. What are the bank’s required reserves? Show your computation.
3. What are the bank’s excess reserves? Show your computation.
4. Assume that all other banks begin with zero excess reserves. Now this bank lends out the entirety of its excess reserves, and, as the lending-deposit process enfolds, other banks also lend out all excess reserves. What is the increase in the money supply? Show your computation and explain your answer.
I need #4 to be answered
Item
Assets
Liabilities
Checking Deposits
30
Loans
18
Securities
7
Vault Cash
3
Deposits at Fed
2
Explanation / Answer
(4)
Required reserve ratio = 10%
Total increase in money supply = Checkable deposits / Required reserve ratio = 30 / 0.1 = 300
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