Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. The Bank of Canada buys a government bond worth $750,000 from Eric, a client of First Main Street Bank. He deposits the money into his chequing account at First Main Street Bank.NOTE:the options for the LEFT dropdown question for ASSETS are (building and furniture or deposits or loans or networth or reserves) the options for the RIGHT dropdown question for ASSETS are ($150,000 or $600,000 or $750,000 or $1,800,000)the options for the LEFT dropdown question for LIABILITIES are (building and furniture or deposits or loans or networth or reserves) the options for the RIGHT dropdown question for LIABILITIES are ($150,000 or $600,000 or $750,000 or $1,800,000)the VERY last dropdown question at the bottom choices are ($375,000 or $3,000,000 or $3,750,000) 5. The money creation processSuppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. TheBank of Canada buys a government bond worth $750,000 from Eric, a client of First Main Street Bank. He deposits the money into his chequingaccount at First Main Street Bank.Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans).AssetsLiabilitiesComplete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%.Hint: If the change is negative, be sure to enter the value as a negative number.Amount Deposited Change in Excess Reserves Change in Required Reserves(Dollars)(Dollars)(Dollars)750,000Now, suppose First Main Street Bank loans out all of its new excess reserves to Cho, who immediately uses the funds to write a cheque to Bob. Bobdeposits the funds immediately into his chequing account at Second Republic Bank. Then Second Republic Bank lends out all of its new excessreserves to Eric, who writes a cheque to Ginny, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its newexcess reserves to Lucia as well.Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar.Increase in DepositsIncrease in Required ReservesIncrease in Loans(Dollars)(Dollars)(Dollars)First Main Street BankSecond Republic BankThird Fidelity BankAssume this process continues, with each successive loan deposited into a chequing account and no banks keeping any excess reserves. Under theseassumptions, the $750,000 injection into the money supply results in an overall increase ofin demand deposits.

The balance sheet includes: Assets accounts Liabilities accounts Shareholder's accounts

Answered: Suppose First Main Street Bank, Second…

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Question

Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. The Bank of Canada buys a government bond worth $750,000 from Eric, a client of First Main Street Bank. He deposits the money into his chequing account at First Main Street Bank.

NOTE:

the options for the LEFT dropdown question for ASSETS are (building and furniture or deposits or loans or networth or reserves) the options for the RIGHT dropdown question for ASSETS are ($150,000 or $600,000 or $750,000 or $1,800,000)

the options for the LEFT dropdown question for LIABILITIES are (building and furniture or deposits or loans or networth or reserves) the options for the RIGHT dropdown question for LIABILITIES are ($150,000 or $600,000 or $750,000 or $1,800,000)

the VERY last dropdown question at the bottom choices are ($375,000 or $3,000,000 or $3,750,000)