Question

Table 1 shows the financial position of the Smithville Bank once $2169.00$2169.00 has been deposited.

Table 1. Original Assets and Liabilities

Assets	Liabilities
reserves: $2169.00$2169.00	deposits: $2169.00$2169.00

Assume that the required reserve ratio is 7.00%7.00% .

The bank manager decides to lend Billy Bob Smith all of the bank's excess reserves. Billy Bob takes the funds to Eula Mae's Used Machines and buys a pickup truck. Eula Mae then deposits the money in her account back at the Smithville Bank.

Table 2. Assets and Liabilities After Bank Makes a Loan

Assets	Liabilities
reserves: ?	deposits: ?
loans: ?

Table 2 should show the bank's accounts after the loan is made and the funds again deposited. Round all answers to the nearest cent.

What are the bank's loans in Table 2?

$

What are the bank's reserves in Table 2?

$

What are the bank's deposits in Table 2?

$

Answer 1

Answer- required reserve = deposits × reserve ratio

=$2169 × 7% = $152

Excess reserve= deposits - required reserve

=$2169 - $152=$2017

The bank lent excess reserve of $2017 to Bob Smith.

Table 2.

Assets Liabilities

Reserve $ 2169 Deposits $2169

Loan $ 2017 Eula Mae deposits $2017

Explanation- Eula mae deposits $2017 in same bank, it increases checkable deposits balance by $2017 So total bank's deposits =$2169 + $2017 =$4186

Total reserve = required reserve + excess reserve

Required reserve against Eula mae deposits 7% of $2017 = $141

Excess reserve against Eula mae deposits= $2017 - $141 = $ 1876

Total reserve = $293 + $1876 = $2169

Total loans made by bank =$ 2017