5) Answer the next question based on the following consolidated balance sheet fo
ID: 1119097 • Letter: 5
Question
5) Answer the next question based on the following consolidated balance sheet for the commercial banking system. A quired reserve ratio is 25%. All gures are in millions ollars. Assets Liabilities+ Net Worth Reserves $300 Checkable deposits $800 700 Securities Loans Property 400 Stock shares 200 600 (a) The amount of reserves required by the FED in this commercial banking system is equal to The amount of excess reserves in this commercial banking system, (e) This banking system can safely expand its loans by (d) The monetary maliplier is equal to (b) (e) The max imum amount of moncy supply that can be expanded through this commercial banking system is equal to if the reserve ratio has increased to 30%, new maximum amount of money supply that can be expanded through this commercial banking system is equal to Tony received $5000 in cash (currency of fifty $100 bills) as a gift from his grandfather for Christmas which he deposited in his checking account in XYZ bank. Assume that required reserve ratio is 25%. Answer the following questions as the immediate result of Tony's action: 6) (increase, decrease or no change) a) The assets in XYZ's balance sheet will b) The liabilities in XYZ's balance sheet will c) The reserves in XYZ's balance sheet will d) The properties in XYZ's balance sheet will e) Change in the amount of required reserves of XYZ bank is equal to (increase, decrease or no change (increase, decrease or no change f) Change in the amount of excess reserves of XYZ bank is equal to Change in the maximum amount of money supply that can be expanded through this commercial banking system is equal to g)Explanation / Answer
Answer (a) : Amount of reserve required by the fed in this commerical banking system is equal to $200 ($800*25/100)
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Answer (b) : Excess reserve in the banking system is equal to ($300-$200) $100 in this scanerio. As excess reserve is more than required reserve by $100.
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Answer (c) : Banking system can safely expand its loan by giving out of excess reserve. So that they can get higher interest rate in an economy and they can enjoy the economy at greater phase.
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Answer (d) : The money multiplier is equal to
Money multiplier = 1/ required reserve ratio = 1/ 0.25 = 4
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Answer (e) Maximum amount of money supply that can be expanded through this commerical banking system is equal to $600 ( Checkable deposits- required reserve)
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Answer (f) : New money supply is equal to the $560. It means that difference between $800-$240 is equal to $560. As the required reserve ratio has been changed in an economy drastically.
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