Assume that the balance sheet of a bank in your assigned country as below:Assets LiabilitiesReserves $5,000 Deposits $40,000Loans $45,000 Capital $10,000a. If the required reserve ratio is 3 percent, then how much does this bank has excessreserves?b. Suppose a bank purchases $1,500 of government securities using funds from reserves.How much do bank assets change as a result of this transaction? Show the change inthe balance sheet above. How much does Money Supply change due to this transaction?c. Calculate the bank’s leverage ratio. What is the maximum decrease (in %) in the marketvalue of assets before the bank becomes insolvent? Assume that the balance sheet of a bank in your assigned country as below:ReservesLoansAssets$5,000$45,000DepositsCapitalLiabilities$40,000$10,000a.If the required reserve ratio is 3 percent, then how much does this bank has excessreserves?b. Suppose a bank purchases $1,500 of government securities using funds from reserves.How much do bank assets change as a result of this transaction? Show the change in inthe balance sheet above. How much does Money Supply change due to this transaction?c. Calculate the bank's leverage ratio. What is the maximum decrease (in %) in the marketvalue of assets before the bank becomes insolvent?

The objective of the question is to understand the financial position of the bank by calculating the…

Answered: Assume that the balance sheet of a bank…

Essentials of Economics (MindTap Course List)

8th Edition

ISBN:9781337091992

Author:N. Gregory Mankiw

Publisher:N. Gregory Mankiw

Chapter21: The Monetary System

Section: Chapter Questions

Problem 10PA

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Question

Assume that the balance sheet of a bank in your assigned country as below:
Assets Liabilities
Reserves $5,000 Deposits $40,000
Loans $45,000 Capital $10,000
a. If the required reserve ratio is 3 percent, then how much does this bank has excess
reserves?
b. Suppose a bank purchases $1,500 of government securities using funds from reserves.
How much do bank assets change as a result of this transaction? Show the change in
the balance sheet above. How much does Money Supply change due to this transaction?
c. Calculate the bank’s leverage ratio. What is the maximum decrease (in %) in the market
value of assets before the bank becomes insolvent?