Question

Assets Liabilities Reserves $50,000 Deposits $200,000 Loans $150,000 Using the table above, answer the following questions:...

Assets

Liabilities

Reserves $50,000

Deposits $200,000

Loans $150,000

Using the table above, answer the following questions:

@ What is the reserve ratio of this bank?

@ If someone made a $10,000 deposit and the bank wanted to maintain this reserve ration, what actions would it take? What would this new t-account look like (draw below)?

@ Why can’t a bank lend out all of its reserves?

@ How does the Fed increase and decrease the money supply through open market operations?

Please show your specific work.

Business   Economics   
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Answer #1

@ Reserve ratio= Reserves/Deposits×100

Reserve ratio of this bank=50000/200000×100= 25%.

@ If someone made a deposit of 10000, then bank will keep 2500(10000×25%) in reserve and will lend 7500(10000-2500) to maintain this reserve ratio.

Assets Liabilities
Reserves $52,500 Deposits $210,000
Loans. $157,500

@

Bank can't lend out of its required reserves because of the restrictions imposed by FED. But it can lend out of excess reserves, if there are any.

@

Fed increase the money supply through open market operations by purchasing the government securities available in the market and it can decrease the money supply by selling new government securities in the market.

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