Question

Using the balance sheet below and assuming a required reserve ratio of 33%, answer the following: (a) what is the amount of excess reserves? (b) This bank can safely expand its loans by what amount? (c) By expanding its loans by this amount in part (b), its checkable deposits would expand to what amount (if all loans were made to checking account customers)? (d) If checks clear against the bank equal to the amount loaned in (b), how much would remain in reserves?

Assets	Liabilities + Net Worth
Reserves $ 60,000 Loans 60,000 Securities 40,000 Property 290,000	Checkable deposits $150,000 Stock shares 300,000

Answer 1

a) checkable deposit $150000 and required reserve ration = 33% thus the required reserve amount = $150000* 33%= $49500

thus excess reserve = $60000-$49500=$10500

The maximum amount the bank can expand its loans is $10500

By expanding its loans by $10500 amount in part b , its checkable deposits would expand to $150000+$10500=$160500 amount

Amount loaned in b is $60000+$10500= $70500

now from the new checkable deposit bank has to keep 33% of it as reserve thus $160500*33%=$52965

Excess amount will be used to clear the checks , thus bank will have= $160500-$52965-$70500=$37,035