Question

Consider the balance sheet for the Georgia bank as presented below.

Georgia Bank Balance Sheet
Assets		Liabilities
Government securities	$1,600	Checking accounts	$4,000
Required Reserves	$400	Net Worth	$1,000
Excess Reserves	$0
Loans	$3,000
Total Assets	$5,000	Total Liabilities	$5,000

Using a required reserve ratio of 10% and if the bank keeps no excess reserves, write the changes to the balance sheet for each of the following scenarios:

1. Steve withdraws $200 from his checking account.
2. The Fed buys $1,000 in government securities from the bank.

Answer 1

1. Steve withdraws $200 from checking account

Effects: Checkable deposits fall by $200 to become $4000-$200 = $3800

Since required reserve ratio is 10%,

Reserves fall by 10% of $200 = $20 and become 400-20 = $380

Loans fall by $200-$20 = $180 to become $3000-$180 = $2820

2. Fed buys securities worth $1000 from bank

Effect: Government securities fall by $1000 to become equal to $1600-$1000 = $600

Checkable deposits increase by $1000

Required reserves increase by 10% of $1000 = $100

Loans increase by $1000-$100 = $900