Question

The balance sheet below shows the effect of a new 3,800 deposit in Bank A. Assume...

The balance sheet below shows the effect of a new 3,800 deposit in Bank A. Assume that the commercial banks have established a 16 percent desired reserve and that no bank holds excess reserves.

BANK A

Assets

Liabilities

Reserves 3,800

Deposits 3,800

Loans 0


Assume that Bank A lends its excess reserves to Mr. Jones who spends the proceeds of the loan. Show Bank A's new balance sheet

BANK A

Assets

Liabilities

Reserves  

Deposits

Loans


The money Mr. Jones borrows is deposited in Bank B. Bank B lends its excess reserves to Mr. Smith. Show Bank B's balance sheet after the loan has been made out.

BANK B

Assets

Liabilities

Reserves

Deposits

Loans


The money Mr. Smith borrows is deposited in Bank C. Bank C lends its excess reserves to Mr. Black. Show Bank C's balance sheet after the loan has been made out.

BANK C

Assets

Liabilities

Reserves

Deposits

Loans



The money Mr. Black borrows is deposited in Bank D. Bank D lends its excess reserves to Mr. Green. Show Bank D's balance sheet after the loan has been made out.

BANK D

Assets

Liabilities

Reserves

Deposits

Loans

If the above process continues to completion, the following totals will exist for the banking system:

Part 7: Deposits

Part 8: Reserves
Part 9: Loans

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