Question

5. The following balance sheet is for Big Bucks Bank. The reserve ratio is 20 percent. LO29.3 Assets Liabilities and net worth - (1) (2) (10 (212 Reserves $22,000 Checkable deposits $100,000 Securities 38,000 Loans 40,000 a. What is the maximum amount of new loans that Big Bucks Bank can make? Show in columns 1 and 1' how the bank's balance sheet will appear after the bank has lent this additional amount. b. By how much has the supply of money changed? c. How will the bank's balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against the bank? Show the new balance sheet in columns 2 and 2'. d. Answer questions a, b, and c on the assumption that the reserve ratio is 15 percent.

Answer 1

Page : Date: (a) Calculation of Required Reserve Amount its X Reserves ratio $ 100 uox 201 a $20,000 calculation of Excess reserves Actual Reserves - Required Reserves $22000 - 20000 = $2000 Hence maximum amount of loan that. Big bank can make is $2000 Balance current ( 1 2 Liabilities Checkable deposits sheet Assets | Reserves Securities Loans (100000 102000 Curret (1) (2) 22000 22000 |38000 38000 140,000/42000 100000 10.000 looooo102000 Due to Increase of Checkable deposits.. this results: Increase of money supply by $2000 Change in money = 10.20x2000 = $10000 After Chocks are drawn Against Checkable. deposits will fall by $2000 & Reserves are Alto decrease by $2000 Balance Sheet liabilities (1) (2) Assets a 1 (2) deposits 102000 100 000 Reservoo 22000 checkable 20.000 Securities. 38000 Loans 42000 42000 10.2000 foot 38000 102000 10oro

| Page : Date: if Reserve ratio is 15 % Calculation of Reauired Reserves deposits & Reserve ratio $ 100 wo X 1577. . $15000 calculation of Excessive Reserves. $22000 - 15000 $ 7000 Hence In this cash Big Buck Bank make new loan up to $ 7000 can Balance sheet. Current (1) (2) liabilities Checkable deposits Assets Reserves Secunties I loans curred (1) (2) - 22000 22000 38000 38000 49000 47000 100000 107000 100000 10700d 100000 100000 (6) Due to Increase in Checkable deposits by $7000 - A money supply will be increase by $7000 money multipler a / Reserve Ratio olis - 6.67 Change in Lizibilities Checkable money supply would be 6.67X 7000 = $46667 Aproximatily. Balance sheet w 12 Assete lo 2 22000 15000 secunities 38000 38000 loans. Reserves: Oleposits: 107000 lodovo 470ool 47000 107000 OOOO 107000 100 un