Table 1 Assets Liabilities Reserves $400 Demand deposits $1000 Gov. securities $
ID: 2549951 • Letter: T
Question
Table 1
Assets
Liabilities
Reserves $400
Demand deposits $1000
Gov. securities $300
Other liabilities $200
Loans $500
Owners equity $300
Other $300
Total assets $1500
Total liabilities $1500
Part IV. A hypothetical balance is shown for a commercial bank in Table I. Assume the reserve requirement is initially 20 percent.
Use t-accounts to show how this balance sheet would appear after the following transactions? With each t-account calculate the amount of excess reserves after the transaction. Consider each transaction to be independent by returning to the original situation. Do not make the transactions cumulative.
a. The bank purchases a $100 government bond. Actual______ Excess______
b. A customer deposits $100 in a checking account Actual______ Excess______
c. The bank makes a $100 loan to a customer. Actual_______Excess______
d. A customer writes a check for $100 to pay a debt to another bank. Actual____ Excess____
e. The bank borrows $100 from the Federal Reserve. Actual_____Excess_____
f. The Federal Reserve raises the reserve ratio to 25%. Actual_____ Excess_____
PLEASE ANSWER ALL QUESTIONS
Assets
Liabilities
Reserves $400
Demand deposits $1000
Gov. securities $300
Other liabilities $200
Loans $500
Owners equity $300
Other $300
Total assets $1500
Total liabilities $1500
Explanation / Answer
Solution
Required reserves = Required reserve ratio X Demand deposit
a. The bank purchases a $100 government bond.
T account after above transaction will be:
Government securities + $ 100; Reserve -$ 100
Assets
Liabilities
Reserves $300
Demand deposits $1000
Gov. securities $400
Other liabilities $200
Loans $500
Owners equity $300
Other $300
Total assets $1500
Total liabilities $1500
Actual Reserve = $ 400
Excess Reserves = Actual Reserves - Required Reserves
= $ 300 - (20 % X $ 1000)
=$ 300-$ 200
= $ 100
b. A customer deposits $100 in a checking account
T account after above transaction will be:
Demand deposits + $ 100; Reserve + $ 100
Assets
Liabilities
Reserves $500
Demand deposits $1100
Gov. securities $300
Other liabilities $200
Loans $500
Owners equity $300
Other $300
Total assets $1600
Total liabilities $1600
Actual Reserve = $ 500
Excess Reserves = Actual Reserves - Required Reserves
= $ 500 - (20 % X $ 1100)
= $ 500 - $ 220
= $ 280
c. The bank makes a $100 loan to a customer.
T account after above transaction will be:
Loan + $ 100 ; Reserve -$ 100
Assets
Liabilities
Reserves $300
Demand deposits $1000
Gov. securities $300
Other liabilities $200
Loans $600
Owners equity $300
Other $300
Total assets $1500
Total liabilities $1500
Actual Reserve = $ 300
Excess Reserves = Actual Reserves - Required Reserves
= $ 300 - (20 % X $ 1000)
=$ 300-$ 200
= $ 100
d. A customer writes a check for $100 to pay a debt to another bank.
T account after above transaction will be:
Demand deposits - $ 100 ; Reserve -$ 100
Assets
Liabilities
Reserves $300
Demand deposits $900
Gov. securities $300
Other liabilities $200
Loans $500
Owners equity $300
Other $300
Total assets $1400
Total liabilities $1400
Actual Reserve = $ 300
Excess Reserves = Actual Reserves - Required Reserves
= $ 300 – (20 % X $ 900)
= $ 300 - $ 180
= $ 120
e. The bank borrows $100 from the Federal Reserve.
T account after above transaction will be:
Other Liabilities + $ 100 ; Reserve + $ 100
Assets
Liabilities
Reserves $500
Demand deposits $1000
Gov. securities $300
Other liabilities $300
Loans $500
Owners equity $300
Other $300
Total assets $1500
Total liabilities $1500
Actual Reserve = $ 500
Excess Reserves = Actual Reserves - Required Reserves
= $ 300 – (20 % X $ 1000)
= $ 500 - $ 200
= $ 300
f. The Federal Reserve raises the reserve ratio to 25%.
T account after above transaction will be: Not impact.
Only required reserves amount will change
Assets
Liabilities
Reserves $400
Demand deposits $1000
Gov. securities $300
Other liabilities $200
Loans $500
Owners equity $300
Other $300
Total assets $1500
Total liabilities $1500
Actual Reserve = $ 400
Excess Reserves = Actual Reserves - Required Reserves
= $ 400 – (25 % X $ 1000)
= $ 400 - $ 250
= $ 150
Assets
Liabilities
Reserves $300
Demand deposits $1000
Gov. securities $400
Other liabilities $200
Loans $500
Owners equity $300
Other $300
Total assets $1500
Total liabilities $1500
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