FITB-Q6 [3 marks] Given the balance sheet of BSP Bank as follows: Assets Liabilities Reserves 25000 Deposits 30000 Loans 5000 Given that the reserve-deposit ratio is 10% and you decide to deposit 1000 into BSP Bank. a) Solve for the change in reserves: b) Solve for the change in loans: c) Solve for the overall change in money supply:
Added by Terri S.
Close
Step 1
The reserve-deposit ratio is given as 10%. This means that for every dollar deposited, the bank is required to hold 10% of it as reserves. Show more…
Show all steps
Your feedback will help us improve your experience
Labs
Want to see this concept in action?
Explore this concept interactively to see how it behaves as you change inputs.
Key Concepts
Recommended Videos
By using the table, Balance Sheet Assets ($) Liabilities ($) Vault Cash 7500 Deposits 25000 Loans 17500 Total Assets 25000 Total Liabilities 25000 1. If the required reserve ratio is 25 percent, what is the required reserve? 2. Refer to the balance sheet above. If the required reserve ratio is 25 percent, what is the maximum loan that the bank can newly make? 3. After the new loan, make a new balance sheet. By using the table, Lender (Depositor) Bank (New) Deposit ($) Required Reserves ($) Excess Reserves ($) (Loans) Borrower Adam Bank A 35000 22750 Stacey Stacey Bank B Marie Marie Bank C John 4. What is the reserve requirement ratio? 5. Before making loan to Stacey, what is the change in the net money supply with the initial deposit of 35,000 in Bank A? 6. By using the reserve requirement ratio (#4), complete the table.
Sri K.
Although the U.S. Federal Reserve doesn't use changes in reserve requirements to manage the money supply, the central bank of Albernia does. The commercial banks of Albernia have $\$ 100$ million in reserves and $\$ 1,000$ million in checkable deposits; the initial required reserve ratio is $10 \%$. The commercial banks follow a policy of holding no excess reserves. The public holds no currency, only checkable deposits in the banking system. a. How will the money supply change if the required reserve ratio falls to $5 \%$ ? b. How will the money supply change if the required reserve ratio rises to $25 \%$ ?
Recommended Textbooks
Principles of Economics
Principles of Microeconomics for AP® Courses
Economics
Transcript
Watch the video solution with this free unlock.
EMAIL
PASSWORD