Suppose a bank\'s balance sheet looks as follows: Assets Liabilities Reserves$35

Question

Suppose a bank's balance sheet looks as follows: Assets                                                                   Liabilities Reserves$350                                      Deposites   $4,000 and the banks are required to hold reserves equal to 10percent of deposites. a) How much excess reserves does the bank hold? b) How much more can this bank lend? Suppose a bank's balance sheet looks as follows: Assets                                                                   Liabilities Reserves$350                                      Deposites   $4,000 and the banks are required to hold reserves equal to 10percent of deposites. a) How much excess reserves does the bank hold? b) How much more can this bank lend? Reserves$350                                      Deposites   $4,000 and the banks are required to hold reserves equal to 10percent of deposites. a) How much excess reserves does the bank hold? b) How much more can this bank lend?

Explanation / Answer

(a) Required Reserves = m * Demand deposits       Required Reserves = 0.10 *$4,000       Required Reserves = $400       Excess Reserves = Reserves -Required Reserves       Excess Reserves = $350 -$400       Excess Reserves =-$50 Hope it may help you Hope it may help you

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