Question

Suppose Yukon Bank has the following simplified balance sheet and that the desired reserve ratio is 20 percent.

Instructions: All answers to this question should be entered as whole numbers.

Assets					Liabilities and net worth
		(1)	(2)				(1' )	(2' )
Cash reserves	$22,000	$	$		Deposits	$100,000	$	$
Securities	38,000	$	$
Loans	40,000	$	$

a. What is the maximum amount of new loans Yukon Bank can make?

    $

    Show in columns 1 and 1' how the bank's balance sheet will appear after the bank has loaned this additional amount.

b. By how much has the supply of money changed?

   $

c. How will the bank’s balance sheet appear after cheques drawn for the entire amount of the new loans have been cleared against this bank? Show this new balance sheet in column 2 and 2'.

d. Answer parts (a), (b), and (c) on the assumption that the desired reserve ratio is 15 percent.

    What is the maximum amount of new loans Yukon Bank can make?

    $

    Show in columns 3 and 3' (below) how the bank’s balance sheet will appear after the bank has loaned this additional amount.

    By how much has the supply of money changed?

    $
   

Assets					Liabilities and net worth
		(3)	(4)				(3' )	(4' )
Cash reserves	$22,000	$	$		Deposits	$100,000	$	$
Securities	38,000	$	$
Loans	40,000	$	$

   
    How will the bank’s balance sheet appear after cheques drawn for the entire amount of the new loans have been cleared against this bank? Show this new balance sheet in column 4 and 4' in the table above.

I need to fill the (1) (2) (1')(2') (3)(4) (3')(4') columns filled and the questions asked

Answer 1

Answer: (a) $2,000; Column (1): Cash reserves = $22,000; Securities = $38,000; Loans = $42,000; Chequable deposits = $102,000

(b)Increase in the money supply by $2,000

(c) Column (2): Cash reserves = $20,000; Securities = $38,000; Loans = $42,000; Chequable deposits = $100,000

(d) Part (a): $7,000; Column (1) Cash reserves = $22,000; Securities = $38,000; Loans = $47,000; Chequable deposits = $107,000

(d) Part (b): Increase in the money supply by $7,000

(d) Part (c): Column (2): Cash reserves = $15,000; Securities = $38,000; Loans = $47,000; Chequable deposits = $100,000