Subpart (a):
Balance sheet .
Subpart (a):
Explanation of Solution
The
Hence, the required reserves are $50 billion.
The excess reserves are evaluated as follows:
Hence, the excess reserves are $2 billion.
The maximum amount of a banking system is obtained by taking the product of the monetary multiplier and the amount of excess reserves. Thus, the monetary multiplier can be calculated as follows:
Hence, the monetary multiplier is 4.
Then, the maximum amount of loans is evaluated as follows:
Hence, the maximum amount of loan is $8 billion.
Table -1 shows the consolidated balance sheet obtained from the given diagram.
Table -1
Assets | Liabilities and Net worth | ||||
(1) | (2) | ||||
Reserves | $52 | $52 | Checkable deposits | $200 | $208 |
Securities | 48 | 48 | |||
Loans | 100 | 108 |
Concept introduction:
Balance sheet: Itis a financial statement that encapsulates an organization’s assets, their liabilities, and equity of the shareholders at a particular point in time.
Subpart (b):
To determine: Balance sheet.
Subpart (b):
Explanation of Solution
The required reserves are evaluated as follows:
Hence, the required reserves are $40 billion.
The excess reserves are evaluated as follows:
Hence, the excess reserves are $12 billion.
Thus, the monetary multiplier is evaluated as follows:
Hence, the money multiplier is 5.
Then the maximum amount of loans is evaluated as follows:
Hence, the maximum amount of loans is $60 billion.
Table -2 shows the new consolidated balance sheet obtained from the given diagram.
Table -2
Assets | Liabilities and Net worth | ||||
(1) | (2) | ||||
Reserves | $52 | $52 | Checkable deposits | $200 | $260 |
Securities | 48 | 48 | |||
Loans | 100 | 160 |
With the
Hence, the banking system can lend $52 billion more.
Concept introduction:
Balance sheet: Itis a financial statement that encapsulates an organization’s assets, their liabilities, and equity of the shareholders at a particular point in time.
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Chapter 35 Solutions
ECONOMICS-W/CONNECT ACCESS
- Assume that the balance sheet of a bank in your assigned country as below:Assets LiabilitiesReserves $5,000 Deposits $40,000Loans $45,000 Capital $10,000a. If the required reserve ratio is 3 percent, then how much does this bank has excessreserves?b. Suppose a bank purchases $1,500 of government securities using funds from reserves.How much do bank assets change as a result of this transaction? Show the change inthe balance sheet above. How much does Money Supply change due to this transaction?c. Calculate the bank’s leverage ratio. What is the maximum decrease (in %) in the marketvalue of assets before the bank becomes insolvent?arrow_forward13. Suppose that the T-account for Nan Bank Inc. is as follows:Assets LiabilitiesReserves $100,000Loans $400,000 Deposits $500,000If the Bank of Canada requires banks to hold 5 percent of deposits asreserves, how much in excess reserves does Nan Bank Inc. now hold?Assume that all other banks hold only the required amount of reserves. IfNan Bank Inc. decides to reduce its reserves to only the required amount, byhow much would the economy's money supply increase?arrow_forwardBank A has $5,000 in reserves, all required to be held. The required reserve ratio is 10 percent. Bank A has checkable deposits of O $500. O $5,000. O $50,000. O $500,000.arrow_forward
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