The questions on this homework deal with an economy called Economica. This econo
ID: 1209020 • Letter: T
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.
Calculate this economy's monetary base by combining actual and potential reserves. Note that the base is an economy-wide variable. Carefully follow all numeric instructions.
You can safely assume that all banks must keep 10% of DD as required reserves.
Explanation / Answer
Answer
Balance sheet of the Banking system :
Bank One: Bank Two
Liability
Assets
Liability
Assets
Equity 6,000
Cash 1500
Equity 8,000
Cash 2000
Savings deposit 12,000
Deposits (Fed) 3000
Savings deposit 15,000
Fed deposit 3500
DD 16,000
Loans 29,500
DD 20,000
Loans 37,500
Total 34,000
34 ,000
43,000
43, 000
Reserves held by the FED 10% 0f bank liabilities
Reserves with the FED
Equity
Bank 1 60
Bank 2 80
Savings deposit
Bank 1 120
Bank2 150
DD
Bank1 160
Bank2 200
Cash with the banks
Bank1 1500
Bank 2 2000
Cash with the public
6000
Total
10,270
Liability
Assets
Liability
Assets
Equity 6,000
Cash 1500
Equity 8,000
Cash 2000
Savings deposit 12,000
Deposits (Fed) 3000
Savings deposit 15,000
Fed deposit 3500
DD 16,000
Loans 29,500
DD 20,000
Loans 37,500
Total 34,000
34 ,000
43,000
43, 000
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