Principles of Economics - Text Only (Looseleaf) (Custom)
17th Edition
ISBN: 9781305315617
Author: Mankiw
Publisher: CENGAGE L
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Question
Chapter 29, Problem 6PA
Sub part (a):
To determine
The balance sheet and leverage ratio of the bank.
Sub part (b):
To determine
The balance sheet and leverage ratio of the bank.
Sub part (c):
To determine
The balance sheet and leverage ratio of the bank.
Subpart (d):
To determine
The balance sheet and leverage ratio of the bank.
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2. Happy Bank starts with $200 in bank capital. It then takes in $800 in deposits. It keeps 12.5% (1/8th) of deposits in reserve. It uses the rest of its assets to make bank loans.
A.) Show the balance sheet of Happy Bank.B.) What is Happy Bank’s leverage ratio?C.) Suppose that 10% of the borrowers from Happy Bank default and these bank loans become worthless. Show the bank’s new balance sheet.
Please only answer part D
D.) By what percentage do the bank’s total assets decline? By what percentage does the bank’s capital decline? Which change is larger? Why?
The table below, shows the balance sheet of the Bruins Bank.
Assets
Reserves
Loans
Securities
Fixed assets
Total
$30
240
90
40
400
Liabilities/Equity
Demand Deposits
Shareholders' equity
Total
$360
40
400
By how much is the Bruins Bank over- or under-reserved if the target reserve ratio is as listed below.
a. If the target reserve ratio is 2.5% the Bruins Bank is over-reserved
b. If the target reserve ratio is 5.0% the Bruins Bank is over-reserved
c. If the target reserve ratio is 7.5% the Bruins Bank is over-reserved
d. If the target reserve ratio is 12.5% the Bruins Bank is under-reserved
v
by $
by $
by $
by $
The table below is the balance sheet for the Oilers Bank, which has a target reserve ratio of 5%.
Liabilities/Equity
Demand Deposits
Shareholders' equity
Assets
Reserves
Loans
Securities
Fixed assets
Total
$3,000
34,000
8,500
4,500
50,000
Total
$40,000
10,000
50,000
a. The Oilers Bank is over-reserved by $
b. The bank makes a loan equal to the excess reserves and the borrower writes a cheque (for the full amount of the loan) to another
customer of the bank, who then deposits it.
The new amount of excess reserves is $
c. Instead, the cheque written by the borrower is cleared against the Oilers Bank (the cheque was written to a customer of another
bank).
The amount of excess reserves held by the Oilers Bank is $
Chapter 29 Solutions
Principles of Economics - Text Only (Looseleaf) (Custom)
Ch. 29.1 - Prob. 1QQCh. 29.2 - Prob. 2QQCh. 29.3 - Prob. 3QQCh. 29.4 - Prob. 4QQCh. 29 - Prob. 1CQQCh. 29 - Prob. 2CQQCh. 29 - Prob. 3CQQCh. 29 - Prob. 4CQQCh. 29 - Prob. 5CQQCh. 29 - Prob. 6CQQ
Ch. 29 - Prob. 1QRCh. 29 - Prob. 2QRCh. 29 - Prob. 3QRCh. 29 - Prob. 4QRCh. 29 - Prob. 5QRCh. 29 - Prob. 6QRCh. 29 - Prob. 7QRCh. 29 - Prob. 8QRCh. 29 - Prob. 9QRCh. 29 - Prob. 10QRCh. 29 - Prob. 1PACh. 29 - Prob. 2PACh. 29 - Prob. 3PACh. 29 - Prob. 4PACh. 29 - Prob. 5PACh. 29 - Prob. 6PACh. 29 - Prob. 7PACh. 29 - Prob. 8PACh. 29 - Prob. 9PACh. 29 - Prob. 10PACh. 29 - Prob. 11PACh. 29 - Prob. 12PA
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- What is Supplies of Liquid Funds? What are Laws Limiting Bank Lending and Risk?arrow_forwardUse the information presented in Southwestern Mutual Bank's balance sheet to answer the following questions. Suppose the owners of the bank borrow $100 to supplement their existing reserves. This would increase the reserves account and the account. his would also bring the leverage ratio from its initial value of to a new value of . Which of the following do bankers take into account when determining how to allocate their assets? Check all that apply. The riskiness of each asset The total value of liabilities The size of the monetary basearrow_forwardThe table below is the balance sheet for all banks combined in the banking system. All banks have a target reserve ratio of 2.5%. Assets Reserves Loans Securities Fixed assets Total $160,000 $ 5,226,500 675,000 688,500 6,750,000 Liabilities/Equity Demand Deposits Shareholders equity Total $6,075,000 $ 675,000 6,750,000 a. The amount of excess reserves is $ b. The maximum amount that loans and deposits could be increased by is $ c. Assume that the system becomes fully loaned up. Show the new balance sheet in the table above. d. Now that the system is fully loaned up, the money supply will have increased by $arrow_forward
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