The following is a consolidated balance sheet of commercial banks in a hypotheti

Question

The following is a consolidated balance sheet of commercial banks in a hypothetical country. Total bank reserves equal excess reserves plus required reserves. The legal reserve requirement is 25%. Assets Liabilities Excess Reserves $500 Deposits $6,000 Required Reserves $1,500 Loans $4,000 Total $6,000 Total $6,000 4.2. The commercial banks currently hold $500 in excess reserves. Suppose the commercial banks loan out this $500. The following is the new consolidated balance of the commercial banks after only ONE round of loans and redeposits. Assume that all the additional loans are redeposited into the commercial banking system. Below is the new balance sheet with some missing values. Assets Liabilities Excess Reserves $375 Deposits $6,500 Required Reserves ? ? Loans ? ? Total $6,500 Total $6,500 In the above balance sheet, required reserves should be ____, and loans should be ____. A. $1,625; $4,500 B. $1,500; $4,000 C. $2,000; $4,500

Explanation / Answer

B. $1,500;

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