1. In answering the question, you should emphasize the line of reasoning that generated your results; it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answer. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. The Bank of Uchenna has the following balance sheet. Assets Liabilities and Equity Reserves $30,000 Demand deposits $100,000 Loans $70,000 Property $2,000 Equity (net worth) $2,000 Assume that the reserve requirement ratio is 20 percent. a. Calculate the dollar value of the reserves that the Bank of Uchenna is required to hold. b. Given the current reserves, calculate the maximum value of additional loans that the Bank of Uchenna can make. c. Assume that Elike raises $5,000 in cash from a yard sale and deposits the cash in his checking account at the Bank of Uchenna. By how much does the money supply immediately change as a result of Elike’s deposit? d. Calculate the maximum change in demand deposits in the banking system as a whole resulting from Elike’s deposit. e. If the Bank of Uchenna is not meeting its reserve requirement, what action can it take to meet the reserve requirement without calling in loans or selling property?
1. In answering the question, you should emphasize the line of reasoning that generated your results; it is not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required, in explaining your answer. A correctly labeled diagram must have all axes and curves clearly labeled and must show directional changes. The Bank of Uchenna has the following balance sheet. Assets Liabilities and Equity Reserves $30,000 Demand deposits $100,000 Loans $70,000 Property $2,000 Equity (net worth) $2,000 Assume that the reserve requirement ratio is 20 percent. a. Calculate the dollar value of the reserves that the Bank of Uchenna is required to hold. b. Given the current reserves, calculate the maximum value of additional loans that the Bank of Uchenna can make. c. Assume that Elike raises $5,000 in cash from a yard sale and deposits the cash in his checking account at the Bank of Uchenna. By how much does the money supply immediately change as a result of Elike’s deposit? d. Calculate the maximum change in demand deposits in the banking system as a whole resulting from Elike’s deposit. e. If the Bank of Uchenna is not meeting its reserve requirement, what action can it take to meet the reserve requirement without calling in loans or selling property?
Principles of Macroeconomics (MindTap Course List)
7th Edition
ISBN:9781285165912
Author:N. Gregory Mankiw
Publisher:N. Gregory Mankiw
Chapter16: The Monetary System
Section: Chapter Questions
Problem 5PA
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Transcribed Image Text:1. In answering the question, you should emphasize the line of reasoning that generated your results; it is
not enough to list the results of your analysis. Include correctly labeled diagrams, if useful or required,
in explaining your answer. A correctly labeled diagram must have all axes and curves clearly labeled
and must show directional changes.
The Bank of Uchenna has the following balance sheet.
Assets
Liabilities and Equity
Reserves
$30,000 Demand deposits
$100,000
Loans
$70,000
Property
$2,000 Equity (net worth)
$2,000
Assume that the reserve requirement ratio is 20 percent.
a. Calculate the dollar value of the reserves that the Bank of Uchenna is required to hold.
b. Given the current reserves, calculate the maximum value of additional loans that the Bank of
Uchenna can make.
c. Assume that Elike raises $5,000 in cash from a yard sale and deposits the cash in his checking
account at the Bank of Uchenna. By how much does the money supply immediately change as a
result of Elike’s deposit?
d. Calculate the maximum change in demand deposits in the banking system as a whole resulting
from Elike’s deposit.
e. If the Bank of Uchenna is not meeting its reserve requirement, what action can it take to meet the
reserve requirement without calling in loans or selling property?
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