Question

 A bank has the following assets: $80 in Reserves, 5350 in Bonds, $550 in Loans.

 It has the following Liabilities: $600 in Checkable Deposits, $200 Borrowings

 The bank experiences an outflow of deposits of $50. The bank takes a loan from the Fed to meet the reserve requirement of 10%. If the bank take the minimum amount necessary, what is the new level of borrowings?

Answer 1

The bank experiences an outflow of deposits of $50.

So, after this outflow of deposits of $50, the bank's checkable deposits will be $550 and reserves will be $30.

The reserve requirement is 10%.

Required reserves to be maintained = $550 * 0.10 = $55

So, bank has to maintain $55 as reserves but it has only $30. This means that it must arrange ($55 - $30) $25 to meet reserve requirement.

Thus, it will borrow $25 from Fed.

After borrowing, the new level of borrowings is ($200 + $25) $225.