What is the maximum amount of new loans that Big Bucks Bank can make?
$
Using the table above, show in columns 1 and 1' how the bank's balance sheet will appear after the bank has lent this additional amount by inserting the new values into the gray shaded cells of the given table.
b. By how much has the money supply changed?
$
c. How will the bank’s balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against the bank? Show the new balance sheet in columns 2 and 2' by inserting the new values into the gray shaded cells of the given table.
d. Using the original figures, revisit questions a, b, and c based on the assumption that the reserve ratio is now 15 percent.
What is the maximum amount of new loans that this bank can make?
$
Show in columns 3 and 3' how the bank’s balance sheet will appear after the bank has lent this additional amount. Add the new values into the gray shaded cells of the given table.
By how much has the money supply changed?
$
How will the bank’s balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against the bank? Show the new balance sheet in columns 4 and 4' in the table above. Add the new values into the gray shaded cells of the given table.
ANSWER :
a.
Checkable deposit = 100000 ($)
Reserve required = 100000 * 0.20 = 20000 ($)
Excess reserve = 23000 - 20000 = 3000 ($)
Maximum new loans possible = 3000 / 0.20 = 15000 ($) (ANSWER) .
New checkable deposit = 100000 + 15000 = 115000 ($)
New reserves required = 115000 * 0.20 = 23000 ($)
The balance sheet will be as under :
(Values in ($) :
Assets Liabilities
Col. 1 Col. 1’
Reserves 23,000 checkable deposits 115,000
Securities 38,000
Loans 54,000
_________ _________
Total 115,000 115,000
b.
Money supply increased = $15,000 (ANSWER)
c.
If $15000 checks are cleared, the balance sheet will be as under :
(Values in ($) :
Assets Liabilities
Col. 2 Col. 2’
Reserves 8,000 checkable deposits 100,000
Securities 38,000
Loans 54,000
_________ _________
Total 100,000 100,000
d.
If reserves ratio is 15% , the balance sheet will be as under :
Excess Reserve = 23000 - 15000 = 8000 ($)
New loans = 8000/0.15 = 53333 ($)
(Values in ($) :
Assets Liabilities
Col. 3 col. 4 Col. 3’ col. 4’
Reserves 23,000 (30,333) checkable deposits 153,333 100,000
Securities 38,000 38,000
Loans 92,333 93,333
________ _______ ________ _______
Total 153,333 100,000 153,330 100,000
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