Question

Suppose that banks had deposits of $500 billion, a desired reserve ratio of 4 percent and no excess reserves. The banks had $15 billion in notes and coins. Calculate the banks’ reserves at the central bank.
   A bank has $500 million in checkable deposits, $600 million in savings deposits, $400 million in small time deposits, $950 million in loans to businesses, $500 million in government securities, $20 million in currency, and $30 million in its reserve account at the Fed. Calculate the bank’s deposits that are part of M1, deposits that are part of M2, and the bank’s loans, securities, and reserves

Answer 1

1ans) banks had deposits of $500 billion

desired reserve ratio of 4 percent and no excess reserves.

500*4%=20

reserves = $20 million

2ans)

M1 money shall include - Currency with public Demand deposit in all banks (e.g. current account, savings account) Other deposits with Central Bank Deposit with World Bank, Foreign Government, etc. Interbank deposit

Therefore M1 = $500 million + $ 600 + $ 400 + $500 + $ 20 + S30 = $ 2050.

M2 = M1 + Post office bank savings -

Here M2 = M1 as there are none post office savings = $ 2050.

• Bank Loan = $ 950 million loan to businesses
• Securities = $ 500 million in Govt securities
• Reserves = $20 + $ 30 = $50 million