The questions on this homework deal with an economy called Economica. This econo

Question

The questions on this homework deal with an economy called Economica. This economy contains a total of two banks; I've included partial balance sheet information for each below. To avoid each question becoming huge, I won't repeat this information for future questions.

Bank One:

$1,500 cash within the bank

$3,000 Deposit in the Fed

$6,000 equity (capital)

$12,000 saving deposits

$16,000 checking deposits (DD)

Bank Two:

$2,000 cash within the bank

$3,500 Deposit in the Fed

$8,000 equity (capital)

$15,000 savings deposits

$20,000 checking deposits (DD)

Residents in this economy hold $6,000 in cash. The reserve requirement ratio is the same as we've used on all graded assignments.

You can safely assume that all banks must keep 10% of DD as required reserves.

Calculate the economy-wide desired excess reserves ratio. Assume for the purposes of this question that these are the only two banks in the economy. Because precision is very important with the multiplier and its components, round your final answer and any intermediate steps to THREE decimal places. Do NOT convert your answer into percent. You must follow these instructions to receive credit for your answer!

Explanation / Answer

Required reserve of Bank1 : 10% of ($1,500 + $6,000 + $12,000 + $16,000) = $ 3,550

Excess reserve = 35,500 - 3,550 = $ 31,950

Required reserve of Bank 2 : 10% of ($2,000 + $8,000 + $15,000 + $20,000) = $ 4,500

Excess reserve = $ 45,000 - $ 4,500 = $ 40,500

Economy wise excess reserve = $ 31,950 + $ 40,500 = $ 72,450

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