Question

TABLE A:

ASSETS	LIABILITIES
Required Reserves $288,000	Demand Deposits $1,800,000
Excess 12,000
Loans and Securities $1,500,000
Total Assets $1,800,000	Total Liabilities $1,800,000

31. The money multiplier for the bank in TABLE A is

A) 5.

B) 10

C) 8.33

D) 6.25

32. If someone withdraws $12,000 from TABLE A, the bank will:

A) have zero excess reserves.

B) have excess reserves of $1,920.

C) have a reserve deficiency of $1,000

D) have excess reserves of $1000

Answer 1

Answer: 31: D) 6.25

Steps:

1- The formula of money multiplier is :

                 money multiplier = 1 / required reserve ratio

2- We will calculate required reserve ratio:

Required reserve ratio = required reserves / deposit liabilities

Required reserve ratio = $288,000 / $1,800,000

Required reserve ratio = 0.16

3- Will put the value of required reserve ratio in the formula of money multiplier:

Money multiplier = 1/ 0.16

Money multiplier = 6.25

Answer: 32: A) have zero excess reserves.

As the bank gives loan from its excess reserves and here the excess reserve is given as 12,000 so if someone withdraws 12,000 than the bank will have zero excess reserve