Question

Suppose that the first national bank currently holds a total of 46 million dollars in deposits from over 120,000 clients. At the same time, the total amount of loans people owe the bank is 11 million dollars. Assume that the bank currently has 3 million dollars in cash and 1 million dollars worth of securities invested in the financial market. The bank also owns some physical assets, such as its office building. Suppose the bank is loaned up, what is the required reserve ratio?

Round your answer to 2 digits after the decimal point. Leave out the percentage sign, that is, if your answer is 1.23%, type 1.23, not 1.23%, not 0.0123

Suppose that the first national bank currently holds a total of 11 million dollars in deposits from over 120,000 clients. At the same time, the total amount of loans people owe the bank is 2 million dollars. Assume that the bank currently has 2 million dollars in cash and 1 million dollars worth of securities invested in the financial market. The bank also owns some physical assets, such as its office building. What is the amount of excess reserve (in millions) held by the bank if the reserve ratio is 0.09?

Round your answer to 2 digits after the decimal point. If your answer is 1.23 millions, type 1.23 as your answer, not 1,230,000.

2 questions Macroecon

Answer 1

Question 1

Total deposits = $46 million

The bank is loaned up. This means that bank has no excess reserves.

The cash bank holds is equal to required reserves it has to keep.

Cash = $3 million

So,

Required reserves = $3 million

Calculate the required reserve ratio -

Required reserve ratio = (Required reserves/Total deposits) * 100 = ($3 million/$46 million) * 100 = 6.52%

The required reserve ratio is 6.52%.

Question 2

Total deposits = $11 million

Reserve ratio = 0.09

Required reserves = Total deposits * Reserve ratio = $11 million * 0.09 = $990,000

Total reserves = Cash held by bank = $2 million

Calculate the excess reserves -

Excess reserves = Total reserves - Required reserves = $2 million - $990,000 = $1,010,000

The amount of excess reserves held by the bank is $1,010,000.