Homework Answers
Solution: Balance sheet-1
Explanation: Because after deposit outflow of 50 million reserves, the bank would still hold a excess reserves of $5 million computed as:
= Reserves - Required reserves
= $50 million - 10% * ($500 million - $50 million)
= $50 million - $450 million
= $5 million
Therefore bank would not have to alter further the balance sheet and would not incur any costs due to the deposit outflow
On contrary in balance sheet-2 there will be shortfall of reserves of $20 million (= $25 million - $45 million).
As per policy we have to answer first question
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