Answered: The Required Reserve Ratio is 25% for…

Principles of Economics 2e

2nd Edition

ISBN:9781947172364

Author:Steven A. Greenlaw; David Shapiro

Publisher:Steven A. Greenlaw; David Shapiro

Chapter16: Information, Risk, And Insurance

Section: Chapter Questions

Problem 8RQ: What are some ways that someone looking for a loan might reassure a bank that is faced with...

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The Required Reserve Ratio is 25% for all banks. Assuming that all the customers that have outstanding loans have used all of those additional funds to invest in new machinery for their businesses (therefore, the amount of Checkable Deposits is the true liability the bank has to its customers), then $_____________ is the resulting change to the loan creating potential of the whole system (these three banks) as a result of Second National Bank customers depositing an additional $400,000 in their Checkable Deposit accounts. (Do NOT enter the '$' in your response. Enter a whole dollar amount; do NOT enter cents.) in new loans.

First National Bank
Liabilities and Net Worth
Assets
US Treasury Bonds
$450,000
Net Worth
$500,000
Reserves (Cash)
$175,000
Checkable Deposits
$250,000
Loans
$125,000
Second National Bank
Liabilities and Net Worth
Assets
US Treasury Bonds
$100,000
Net Worth
$250,000
Reserves (Cash)
$250,000
Checkable Deposits
$100,000
Third National Bank
Liabilities and Net Worth
Assets
US Treasury Bonds
$900,000
Net Worth
$1,000,000
Reserves (Cash)
$350,000
Checkable Deposits
$500,000
Loans
$250,000

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So based on the question asked, we just focus on the change in loan potential creation of the additional deposited $400,000 in the Second National Bank, rather than the new loan can be created from all three banks, is it correct? Please explain further.

Thank you so much in advance.

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Will the amount of new loan be affected if the additional $400,000 was deposited in the Second National Bank?

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Will the additional $400,000 which was deposited in the Second National Bank affect the new loan?

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