EBK ESSENTIALS OF ECONOMICS
8th Edition
ISBN: 8220103599832
Author: Mankiw
Publisher: Cengage Learning US
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Question
Chapter 21, Problem 4PA
Subpart (a):
To determine
The T-account for the bank.
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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A chartered bank has $1 million in deposits and $40,000 in desired reserves. Its excess reserves are initially zero.
a. The reserve ratio in the banking system is .......%.
b. If a further $100,000 is deposited in this bank then the bank's desired reserves increase by $.......while the bank's excess reserves increase by $........
a). Calculate excess reserves when required reserve ratio on demand deposit is 14% and required reserve ratio on time deposit is 3%. b). suppose that required reserve ratios are changed to 16% on demand deposits and 0% on time deposits. Calculate excess reserves c. suppose bank sells 3 million in securities on the open market. Calculate the change in the bank's excess reserves when the required reserve ratio on demand deposits is 14%
Big bucks bank
Assets Liabilities
Total reserves $30mm demand deposits $190mm
Loans $100mm
Bonds $100mm
Stockholder equity $40 mm
Suppose the required reserve ratio is 10%. What is the maximum amount of money Big buck bank can create?
If the reserve ratio is increased to 14%, what is the maximum amount of money BBB can create?
3 If the reserve ratio is still at 10% and BBB chose to buy bonds instead of making loans with its excess reserves, what is the maximum amount of money BBB can create?
a) From question #1 & #3, if the prospective Loans and Bonds both paid interest of 6.8%, which strategy would be more profitable for BBB?
b) If BBB decided to pursue #1 as a strategy, what is the maximum money making potential of the banking…
Chapter 21 Solutions
EBK ESSENTIALS OF ECONOMICS
Ch. 21.1 - Prob. 1QQCh. 21.2 - Prob. 2QQCh. 21.3 - Prob. 3QQCh. 21.4 - Prob. 4QQCh. 21 - Prob. 1CQQCh. 21 - Prob. 2CQQCh. 21 - Prob. 3CQQCh. 21 - Prob. 4CQQCh. 21 - Prob. 5CQQCh. 21 - Prob. 6CQQ
Ch. 21 - Prob. 1QRCh. 21 - Prob. 2QRCh. 21 - Prob. 3QRCh. 21 - Prob. 4QRCh. 21 - Prob. 5QRCh. 21 - Prob. 6QRCh. 21 - Prob. 7QRCh. 21 - Prob. 8QRCh. 21 - Prob. 9QRCh. 21 - Prob. 10QRCh. 21 - Prob. 1PACh. 21 - Prob. 2PACh. 21 - Prob. 3PACh. 21 - Prob. 4PACh. 21 - Prob. 5PACh. 21 - Prob. 6PACh. 21 - Prob. 7PACh. 21 - Prob. 8PACh. 21 - Prob. 9PACh. 21 - Prob. 10PACh. 21 - Prob. 11PACh. 21 - Prob. 12PA
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- Suppose that we are a bank with $3,000 worth of deposits. We operate in an economy with a mandated reserve ratio of 12%. Suppose that the bank is keeping $450 in reserves currently, loaning out the rest of its deposits. 9. Is the bank meeting its reserve requirements? Does it have excess reserves? How much more or less must the bank lend out to just exactly meet its reserve requirements? 10. If the bank takes the action you prescribe in your answer to Question 9, how much will the total amount of deposits in the whole banking system change? Assume no cash drain. 11. Suppose instead that there is cash drain of 8%. Now, how much would this same action prescribed in your answer to Question 9 change the total amount of deposits in the whole banking system? 3.arrow_forwardA commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system can increase loans are respectively: Select one: a. $30,000 and $150,000 b. $50,000 and $250,000 c. $50,000 and $500,000 d. $100,000 and $500,000arrow_forwardConsider the following situation in the Canadian banking system: • The Bank of Canada purchases $3 million worth of government securities from an investment dealer with a cheque drawn on the Bank of Canada. • The dealer deposits this cheque at Bank XYZ, a commercial bank. The target reserve ratio for all banks is 30 percent. • All commercial banks operate with no excess reserves. .There is no cash drain. If Bank XYZ increases its loans to the maximum extent possible with its new excess reserves, the fourth-generation banks will be able to expand their loans by OA. $0.50 million. B. $0.72 million.. C. $0.58 million. D. $0.86 million. OE. $1.08 million. OOOarrow_forward
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