2 The reserve requirement. Complete the following information and write appropriate title or answer on each line. Assets Required Reserves Excess Reserves Securities Loans Total Assets $60 $0 Required Reserves Excess Reserves Securities Loans Total Assets $80 100 $240 63 $0 80 Balance Sheet for Banking System Hrabilities 100 Deposits 2.1 Based on the balance sheet, the initial reserve requirement is 60. 2.2 Suppose the Fed lowers the reserves does this create?serve requirement by 0.05. How many dollars of excess 2.3 What is the additional lending capacity due to the change in the reserve requirement? 2.4 Reconstruct the Balance Sheet for Banking System with changes. New Balance Sheet for Banking System Deposits Net Worth Total Liabilities and Net Worth Net Worth Total Liabilities and Net Worth $240 2.5 What is the expansion of the Money Supply? 2.6 Loans have gone up by $0 $240 $0 -

The table below shows information for United Bank. Deposits Reserves Reserve Requirement $300 million $33 million 10% Which of the following statements is true concerning United Bank in the federal funds market? Multiple Choice C O United Bank will lend $33 million reserves in the federal funds market. O United Bank will borrow $30 million reserves in the federal funds market. United Bank will lend $3 million reserves in the federal funds market. United Bank will borrow $3 million reserves in the federal funds market. @ a $ % Λ &

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4. Working through an open-market operation Assume that the following balance sheet portrays the state of the banking system. The banks currently have no excess reserves. Assets (Billions of Dollars) Total reserves 5 Checkable deposits 25 20 50 Loans Securities Total O What is the required reserve ratio? 40% 25% Liabilities and Net Worth 5% 10% Total 50 50

10. If the reserve ratio is 20% and the banking system has excess reserves of $50, the maximum amount of new deposits that can be created through lending is $ Type your answer here

7. The money creation process Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 10%. Hubert, a client of First Main Street Bank, deposits $500,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities                       Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 10%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 500,000         Now, suppose First Main Street Bank loans out all of its new excess reserves to Eileen, who immediately uses the funds to write a check to Clancy. Clancy…

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Part 8 says reserves: number Part 9 says loans: number

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%