Balance Sheet for Princeton Bank (amounts in millions of dollars) Assets Reserve

Question

Balance Sheet for Princeton Bank (amounts in millions of dollars)

Assets
Reserves 30
Securities 140
Loans 280
Total Assets 450

Liabilities + Capital
Transactions Deposits 300
Nontransactions Deposits 140
Capital 10
Total liabilities + capital 450

Of Princeton Bank Balance Sheet for Princeton Bank (amounts in millions of dollars)

Assets
Reserves 30
Securities 140
Loans 280
Total Assets 450

Liabilities + Capital
Transactions Deposits 300
Nontransactions Deposits 140
Capital 10
Total liabilities + capital 450

Of Princeton Bank

Explanation / Answer

It will be short of reserves and thus MB,M1 and M2 decreases m=1/q=12.5 m=(deposit+held currency)/monetary base monetary base=(50,000+6)million/12.5=4000.8 million M1=MB+0.02*deposits=4000.8+1000=5000.8 million M2=M1+6 million=5006 million

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