Question

The balance sheet for the newly formed ACME Bank is shown below. The reserves listed on the balance sheet are reserves on deposit at the Federal Reserve. The cash is the vault cash held in the bank.

1a)

Instructions: Enter your answers as whole numbers. a. Fill in the missing value in the balance sheet. Assets ACME Bank Balance Sheet Liabilities and net worth $ 5,000 Checkable $ 98,000 deposits | $ 98,000 Stock shares | $ 220,000 Cash Reserves Property

1b) If the reserve requirement is 10% percent, how much in excess reserves is the bank holding?_______

Suppose that Goldstar Bank is completely "loaned up." Now suppose that a customer deposits an additional $40,000 into the bank. Assume the reserve requirement is 25 percent.

2a. As a consequence of the $40,000 deposit, Goldstar Bank will now have excess reserves in the amount of $ ____

2b. As a result of the $40,000 initial deposit into Goldstar Bank, the banking system can generate a maximum of $  in new deposits and loans._____

3A) Suppose that in a given month $51 million is deposited into the banking system while $55 million is withdrawn. Assume that the reserve requirement is 25 percent and that the banking system had no excess reserves at the beginning of the month. What is the maximum change that can be expected in the money supply as a consequence of these deposits and withdrawals? Instructions: Enter a positive number to show an increase and a negative number to show a decrease.________

Answer 1

1.

A.

Assets ACME Bank Balance Sheet Liabilities and net worth Checkable $ 5,000 $ 98,000 deposits $ 98,000 Stock shares $ 220,000 Cash Reserves Property $ 215000

1 B.

When required reserve ratio is 10%, then:

Excess Reserve = (98000+5000) - 10%*98000

Excess Reserve = $93200

=======

2.

A.

Excess reserve = 40000 - 25%*40000

Excess reserve = $30000

B.

Maximum amount of new deposits and loans = 40000/required reserve ratio = 40000/25%

Maximum amount of new deposits and loans = $160000

====

3.

A

Maximum change in money supply = (51-55)/25%

Maximum change in money supply = - $16 Million