Leniency Bank wishes to cater to the demands of the residents of Prudence Island, a savings-minded clientele with an unusual appetite for government securities. To this end, Leniency Bank is planning to purchase a large amount of government bonds, which later will be offered to its account holders. The bonds are purchased with the reserves of the bank. The balance sheet describes the bank's current financial situation in millions of dollars. Suppose that the required reserve ratio set by the Fed is 10%. What is the largest government securities purchase Leniency Bank could make before it becomes fully loaned up? Assets cash: $19 reserves: $50 loans; $100 securities: $24 property: $83 Balance sheet: Leniency Bank Liabilities checkable deposits: $230 stock shares: $46 largest government securities purchase: $ million

Leniency Bank wishes to cater to the demands of the residents of Prudence Island, a savings-minded clientele with an unusual appetite for government securities. To this end, Leniency Bank is planning to purchase a large amount of government bonds, which later will be offered to its account holders. The bonds are purchased with the reserves of the bank. The balance sheet describes the bank's current financial situation in millions of dollars. Suppose that the required reserve ratio set by the Fed is 10%. What is the largest government securities purchase Leniency Bank could make before it becomes fully loaned up? Assets cash: $19 reserves: $50 loans; $100 securities: $24 property: $83 Balance sheet: Leniency Bank Liabilities checkable deposits: $230 stock shares: $46 largest government securities purchase: $ million

Survey Of Economics

10th Edition

ISBN:9781337111522

Author:Tucker, Irvin B.

Publisher:Tucker, Irvin B.

Chapter19: Money Creation

Section: Chapter Questions

Problem 15SQ

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One of the major functions of commercial banks is credit creation. Commercial banks create credit by advancing loans and purchasing securities. They lend money to individuals and businesses out of deposits accepted from the public. Commercial banks have to maintain a specified percentage of their deposits as liquidity which is set by the central bank. This reserve requirement controls the extent to which commercial banks can grow money in the economy. Assuming you only have one commercial bank in your economy, a reserve requirement of 20% and an initial deposit of 200. REQUIRED: A. Show for the first four days and the last day the balance sheet of your commercial bank.
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If kelly deposits $450 into his bank and the reserve ratio is 9.5%, what would be the amount of required reserves and excess reserves that are immediately created
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