ECON MACRO
5th Edition
ISBN:9781337000529
Author:William A. McEachern
Publisher:William A. McEachern
Chapter14: Banking And The Money Supply
Section: Chapter Questions
Problem 2.3P
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G5

12. You are given this account for a bank:
Reserves
Loans
ASSETS
$ 500
3,000
LIABILITIES
$3,500
Deposits
The required reserve ratio is 10 percent.
a. How much is the bank required to hold as reserves given its
deposits of $3,500?
b. How much are its excess reserves?
c. By how much can the bank increase its loans?
d. Suppose a depositor comes to the bank and withdraws $200
in cash. Show the bank's new balance sheet, assuming the
bank obtains the cash by drawing down its reserves. Does the
bank now hold excess reserves? Is it meeting the required
reserve ratio? If not, what can it do?
16
Transcribed Image Text:12. You are given this account for a bank: Reserves Loans ASSETS $ 500 3,000 LIABILITIES $3,500 Deposits The required reserve ratio is 10 percent. a. How much is the bank required to hold as reserves given its deposits of $3,500? b. How much are its excess reserves? c. By how much can the bank increase its loans? d. Suppose a depositor comes to the bank and withdraws $200 in cash. Show the bank's new balance sheet, assuming the bank obtains the cash by drawing down its reserves. Does the bank now hold excess reserves? Is it meeting the required reserve ratio? If not, what can it do? 16
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