Assume that the principal assets and liabilities appearing on the consolidate ba

Question

Assume that the principal assets and liabilities appearing on the consolidate balance sheets of all commercial banks and all reserve banks are as follows( in billions):

Commercial:
Vault Cash-$3
Loans-$50
Investments-$60
Demand Deposits-$90
Deposits with Reserve Banks-$20

Reserve Banks:
Commercial Banks Deposits-$20
U.S. Securities-$23
Federal Reserve Notes-$24

a. Arrange the items in balance-sheet order in each case. ( do not expect a balance since some items are omitted).

b. Assuming a 20 percent legal reserve ratio, compute the required reserves and the excess reserves of all commercial banks. ( note: legal reserves are deposits at the Fed).

c, what is the maximum amount of new deposit currency that commercial banks can make available? Adjust the balance sheet, leaving reserves unchanged.

Explanation / Answer

a)Vault cash = asset loans = liabilities investments = assets demand deposits = liability deposits with reserve banks = assets commercial bank deposits = liabilities us securities = assets federal reserve notes = assets b)legal reserve ratio is the % of deposits in reserve bank here deposits = 90 required reserves = 90 * 0.2 = 18 excess reserves = 20 -18 = 2 c)max amnt of reserves reserve bank sells all its securities and deposits its money in commercial banks then deposits would be 90 + 23 + 24 = 137

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