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A local bank has the following information regarding its assets and liabilities: Total assets: HK$1,000,000,000 Total liabilities: HK$900,000,000 The bank's required reserve ratio is 10 %. The bank has issued loans amounting to HK$600,000,000. a) Calculate the bank's total reserves. b) Determine the excess reserves the bank holds. c) If the bank wants to increase its loans by HKS100,000,000, calculate the additional deposits it must attract, assuming the reserve ratio remains unchanged. d) Estimate the maximum amount of money the bank can create through the money multiplier effect if it utilises all its excess reserves.

A local bank has the following information regarding its assets and liabilities: Total assets: HK$1,000,000,000 Total liabilities: HK$900,000,000 The bank's required reserve ratio is 10 %. The bank has issued loans amounting to HK$600,000,000. a) Calculate the bank's total reserves. b) Determine the excess reserves the bank holds. c) If the bank wants to increase its loans by HKS100,000,000, calculate the additional deposits it must attract, assuming the reserve ratio remains unchanged. d) Estimate the maximum amount of money the bank can create through the money multiplier effect if it utilises all its excess reserves.

Principles of Economics 2e
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter27: Money And Banking
Section: Chapter Questions
Problem 30P: A bank has deposits of 400. It holds reserves of 50. It has purchased government bonds worth 70. It...
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A local bank has the following information regarding its assets and liabilities: Total assets: HK$1,000,000,000 Total liabilities: HK$900,000,000 The bank's required reserve ratio is 10 %. The bank has issued loans amounting to HK$600,000,000. a) Calculate the bank's total reserves. b) Determine the excess reserves the bank holds. c) If the bank wants to increase its loans by HKS100,000,000, calculate the additional deposits it must attract, assuming the reserve ratio remains unchanged. d) Estimate the maximum amount of money the bank can create through the money multiplier effect if it utilises all its excess reserves.
Transcribed Image Text:A local bank has the following information regarding its assets and liabilities: Total assets: HK$1,000,000,000 Total liabilities: HK$900,000,000 The bank's required reserve ratio is 10 %. The bank has issued loans amounting to HK$600,000,000. a) Calculate the bank's total reserves. b) Determine the excess reserves the bank holds. c) If the bank wants to increase its loans by HKS100,000,000, calculate the additional deposits it must attract, assuming the reserve ratio remains unchanged. d) Estimate the maximum amount of money the bank can create through the money multiplier effect if it utilises all its excess reserves.
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