You are given this account for a bank: Assets LIABILITIES RESERVES $ 500 $ 3,500

Question

You are given this account for a bank:





Assets LIABILITIES

RESERVES $ 500 $ 3,500 deposits
DEPOSITS

LOANS 3,000


The required reserve ratio is 10 percent.

A. How much is the bank required to hold as reserves, given its deposits
of $ 3,500?

B. How much are its excess reserves ?

C. How much can the bank increase its loans ?

d. Suppose a depositor comes to the bank and withdraws $200 in cash. Show the banks new balance sheet assuming the bank obtains the cash by drawing down its reserves. Does the bank now hold excess reserves? Is it meeting the required reserve ratio? If not, what can it do?

Explanation / Answer

a) reserve that bank should hold is $350 b) excess reserve that bank hold $150 c)bank can increase its loan by $1500 d) asset and libalities will be like this deposits 3300 loans 3000 reserve 300 and bank is holding right amount of reserve

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