Question

Consider that there is only one bank and its balance sheet is as follows Use it to answer the next 3 questions.

Assets		Liabilities
Reserves	$60	Demand Deposits	$500
Loans	$440

Let rr_D = 10%

99. This bank currently has _____ in excess reserves.

a. $0

b. $5

c. $10

d. $50

e. $450

100. If $100 in demand deposits were withdrawn as cash, what would be the bank’s level of undesired excess reserves?

a. negative $30

b. negative $50

c. negative $80

d. negative $100

e. positive $100

101. If $100 in demand deposits were withdrawn and the bank sold off part of its loan portfolio to maintain its required reserves, what would be the remaining loan balance?

a. $320

b. $360

c. $400

d. $200

e. It cannot be determined precisely, but it would be less than $100.

* * * *

Answer 1

99.

Correct Answer:

C

Working note:

Excess reserve = total reserve - required reserve

Excess reserve = 60 - 10%*500

Excess reserve = $10

==========

100.

Correct Answer:

C

Working note:

Deposit left after $100 withdrawal = 500-100 = $400

Required reserve = 10%*400 = $40

Existing total reserve = $60

So,

Undesired excess reserve = 60 - 40 - 100

Undesired excess reserve = -$80

=======

101.

Correct Answer:

B

Working note:

Deposit left after $100 withdrawal = 500-100 = $400

Required reserve = 10%*400 = $40

Existing total reserve = $60

So,

Remaining loan balance = Existing loan balance + existing reserve - required reserve - amount withdrawn

Remaining loan balance = 440 + 60 -100- 40

Remaining loan balance = $360