Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank al

Question

Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. The Federal Reserve buys a government bond worth $750,000 from Jacques, a client of First Main Street Bank. He deposits the money into his checking account at First Main Street Bank.

Now, suppose First Main Street Bank loans out all of its new excess reserves to Eleanor, who immediately uses the funds to write a check to Darnell. Darnell deposits the funds immediately into his checking account at Second Republic Bank. Then Second Republic Bank lends out all of its new excess reserves to Jacques, who writes a check to Kyoko, who deposits the money into her account at Third Fidelity Bank. Third Fidelity lends out all of its new excess reserves to Rina as well.

2.$150,000, $600,000, $750,000, $1,800,000

3.Building and furniture, deposits, loans, new worth, reserves

4.$150,000, $600,000, $750,000, $1,800,000

5.$375,000, $3,000,000, $3,750,000

Bank's T-account (before the Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities

Explanation / Answer

Change in required reserves = 20% of 750000=150000
Change in excess reserves=750000-150000
=600000

Increase in Increase in Increase in
Demand Deposits Required Reserves Loans

First Main Street Bank $750,000.00 $150,000.00 $600,000.00

Second RepublicBank $600,000.00 $120,000.00 $480,000.00 Third Fidelity Bank $480,000.00 $96000.00 $384000.00

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