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 (Irwin Economics)
- Suppose that Cat nation has $125 million in money. There is only one bank in Cat nation and it holds 15% of the deposits as reserves. What is the money multiplier in this economy? O 6.67 20 O 12.67 10arrow_forward0 Question 16 Suppose the following: • Smokey Bank has total deposits of $600,000. In addition, it currently has outstanding loans in the amount of $400,000 Finally, the required reserve ratio is 15%. . . What is the money multiplier? O 0.90 0.10 090 15 O 6.67arrow_forwardRefer to the table below. Item Dollars In Billions Checkable Deposits $600 Small Time Deposits $700 Currency $500 Money-Market Mutual Funds Held by Businesses $1,200 Savings Deposits and Money-Market Deposit Accounts $2,500 Money-Market Mutual Funds Held by Individuals $800 What is the size of the M1 money supply? O $800 O $2,600 O $1,900 O $1,100arrow_forward
- Now, suppose the reserve ratio in the banking system changes to 20% and a $100,000 is deposited into the first bank in the system. What will be the immediate excess reserves for that first bank in the system and by how much can the total money supply in the system expand? O $100,000; $1,900,000. O $80,000; $400,000 $90,000; $900,000. O $10,000; $100,000.arrow_forwardFigure 30-3 On the following graph, MS represents the money supply and MD represents money demand. O 2.0. O 14.3. O 2.9. VALUE OF MONEY O 0.35. 0.35 MS, 8000 MS₂ Refer to Figure 30-3. Suppose the relevant money-supply curve is the one labeled MS₂; also suppose the economy's real GDP is 65,000 for the year. If the market for money is in equilibrium, then the velocity of money is approximately 13000 QUANTITY OF MONEY MDarrow_forwardIf Bank A has $3.8 million in total deposits, $860,000 in total reserves, and faces a 12 percent reserve requirement, the amount of money that Bank A could initially create by loaning out their excess reserves is: O $100,000. O $385,000 $404,000 O $756,800 O $3,366,667arrow_forward
- Suppose there is an upswing in the economy with a large demand for finance to invest by the residential and non-residential building sector such that lending by all banks increases by $250 billion. On the assumption the reserve (or liquidity) ratio of banks is 12% this expansion in economic activity will result in an endogenous increase of O $20 billion of reserves and $230 billion of bank deposit money O $34.1 billion of reserves and $284.1 billion of bank deposit money O $20 billion of reserves and $270 billion of bank deposit money O $26.2 billion of reserves and $276.2 billion of bank deposit moneyarrow_forwardThe following information is for the entire banking system. Assume that banks are fully loaned up (banks hold only required reserves and make the maximum allowed amount of loans). Assume also that there is no currency leak, Required Reserves Ratio =16% Currency held outside of the banking system - 1.200b Deposits = 1.800b The Fed buys 320b in bonds from the public. The NEW money supply equals None of these answers is correct 1,000b O4.0886 5.000b 2.000barrow_forwardPeople in the economy have 350 billion CZK on current accounts, they have 250 billion CZK on saving accounts, people hold 200 billion CZK in cash, commercial banks hold 100 billion CZK in cash and the central bank holds 50 billion CZK in cash. What is the money stock M1? O 550 billion O 700 billion O 750 billion O 600 billionarrow_forward
- In a fractional-reserve banking system, each bank lends out 100% of deposits and does not keep reserves. Then, a one-dollar deposit will generate dollar(s) of money supply. 0 0 O infinite 01 O 10 O 100arrow_forwardScenario: Assets and Liabilities of the Banking System Assets Loans Reserves Reference Ref 14-12 O $111.111 O $250,000 $900,000 100,000 O $666,667 O $1 million Liabilities Deposits (Scenario: Assets and Liabilities of the Banking System) Suppose that the reserve ratio is 10% when the Fed buys $100,000 worth of U.S. Treasury bills from the banking system. If the banking system does NOT want to hold any excess reserves. will be added to the money supply. $1,000,000arrow_forwardSuppose the reserve ratio of a bank is 0.125 and the Fed buys $10 billion worth of government bonds. What is the maximum impact this has on the money supply? O $80 billion O-$15.625 billion $15.625 billion O $125 billionarrow_forward
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