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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

Beleaguered State Bank (BSB) holds $250 million in deposits and maintains a reserve ratio of 10 percent.

a. Show a T-account for BSB.

b. Now suppose that BSB’s largest depositor withdraws $10 million in cash from her account. If BSB decides to restore its reserve ratio by reducing the amount of loans outstanding, show its new T-account.

c. Explain what effect BSB’s action will have on other banks.

d. Why might it be difficult for BSB to take the action described in part (b)? Discuss another way for BSB to return to its original reserve ratio.

Subpart (a):

To determine

The T-account for the bank.

Explanation

The banks are the financial institutions that accept the deposits from the general public and provide loans to the general public in order to meet their various needs.

It is given that the bank holds $250 million in deposits and maintains a reserve ratio of 10 percent (which equals to $25 million). Thus, the T-account of the bank, which shows the size of the deposits with the bank (which is the liability of the bank), and the reserves and loans of the bank (which ar...

Subpart (b):

To determine

The T-account for the bank.

Subpart (c):

To determine

The T-account for the bank.

Subpart (d):

To determine

The T-account for the bank.

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