Question

Your bank has the following balance sheet:

Assets Liabilities

Reserves $50 millions.   Checkable deposits $200 million.

Securities $50 million    Loans $150 Bank

If the required reserve ratio is 20%, what will be the size of this bank (as measured by its total assets or liabilities) after $20 million deposit outflow if it just meets reserve deficiency by borrowing money?

$206 million.

$180 million

$210 million.

$188 million.

Answer 1

20 million deposit outflow will decrease checkable deposits as well as reserves by 20 million. Reserve ratio is 20% which means currently when checkable deposits are 180 million required reserves are 36 million. however 20 millions have been decreased from reserves which means the reserves are now only 30 millions. There will be a loan of 6 million taken by the bank. Total liabilities will be 180 million, after deducting 20 million from checkable deposits.

Select 180 million