Question

 What is the maximum amount of new loans that Big Bucks Bank can make?      

 

     $ 

 

Using the table above, show in columns 1 and 1' how the bank's balance sheet will appear after the bank has lent this additional amount by inserting the new values into the gray shaded cells of the given table.

 

b. By how much has the money supply 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' by inserting the new values into the gray shaded cells of the given table.

 

d. Using the original figures, revisit questions a, b, and c based on the assumption that the reserve ratio is now 15 percent.

What is the maximum amount of new loans that this bank can make?     

 

     $ 

 

Show in columns 3 and 3' how the bank’s balance sheet will appear after the bank has lent this additional amount. Add the new values into the gray shaded cells of the given table. 

 

By how much has the money supply changed?     

 

     $   

 

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 4 and 4' in the table above. Add the new values into the gray shaded cells of the given table.

 

Answer 1

ANSWER :

a.

Checkable deposit = 100000 ($)

Reserve required = 100000 * 0.20 = 20000 ($)

Excess reserve = 23000 - 20000 = 3000 ($)

Maximum new loans possible = 3000 / 0.20 = 15000 ($) (ANSWER) .

New checkable deposit  = 100000 + 15000 = 115000 ($)

New reserves required = 115000 * 0.20 = 23000 ($)

The balance sheet will be as under  :

(Values in ($) :

                  Assets                                           Liabilities

                        Col. 1                                                         Col. 1’

Reserves      23,000                  checkable deposits     115,000

Securities     38,000

Loans            54,000

                  _________                                                    _________

Total            115,000                                                         115,000

b.

Money supply increased  = $15,000 (ANSWER)

c.

If $15000 checks are cleared, the balance sheet will be as under :

(Values in ($) :

                  Assets                                           Liabilities

                        Col. 2                                                         Col. 2’

Reserves        8,000                  checkable deposits     100,000

Securities     38,000

Loans           54,000

                  _________                                                 _________

Total            100,000                                                      100,000

d.

If reserves ratio is 15% , the balance sheet will be as under :

Excess Reserve = 23000 - 15000 = 8000 ($)

New loans = 8000/0.15 = 53333 ($)

(Values in ($) :

                      Assets                                               Liabilities

                     Col. 3       col. 4                                             Col. 3’         col. 4’

Reserves     23,000     (30,333)       checkable deposits     153,333     100,000

Securities     38,000      38,000

Loans           92,333      93,333

                  ________   _______                                         ________    _______

Total            153,333     100,000                                           153,330      100,000