Assets Liabilities and Equity Reserves $5,000 Demand deposits $20,000 Business loans $10,000 Student loans $8,000 Government securities $2,000 Equity (Net worth) $5,000 Total assets $25,000 Total liabilities and equity $25,000 The following is a balance sheet for Smith Bank. Assume a 10% reserve requirement. A. Calculate a 10% reserve requirement B. Calculate the maximum amount of additional loans that Smith Bank can make without selling its holdings of government securities. C. Assuming that Smith Bank and other banks now lend out all excess reserves, calculate the maximum possible change in the following: i. Demand deposits throughout the banking system ii. Total reserves throughout the banking system D. Suppose that the country's central bank purchases $1,000 of Smith Bank's holdings of government securities as part of its open market operations. Do Smith Bank's required reserves initially increase, decrease, or remain the same as a result of the central bank's purchase? Explain.
Assets Liabilities and Equity Reserves $5,000 Demand deposits $20,000 Business loans $10,000 Student loans $8,000 Government securities $2,000 Equity (Net worth) $5,000 Total assets $25,000 Total liabilities and equity $25,000 The following is a balance sheet for Smith Bank. Assume a 10% reserve requirement. A. Calculate a 10% reserve requirement B. Calculate the maximum amount of additional loans that Smith Bank can make without selling its holdings of government securities. C. Assuming that Smith Bank and other banks now lend out all excess reserves, calculate the maximum possible change in the following: i. Demand deposits throughout the banking system ii. Total reserves throughout the banking system D. Suppose that the country's central bank purchases $1,000 of Smith Bank's holdings of government securities as part of its open market operations. Do Smith Bank's required reserves initially increase, decrease, or remain the same as a result of the central bank's purchase? Explain.
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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| Assets | Liabilities and Equity |
| Reserves $5,000 | Demand deposits $20,000 |
| Business loans $10,000 | |
| Student loans $8,000 | |
| Government securities $2,000 | Equity (Net worth) $5,000 |
| Total assets $25,000 | Total liabilities and equity $25,000 |
The following is a
A. Calculate a 10% reserve requirement
B. Calculate the maximum amount of additional loans that Smith Bank can make without selling its holdings of government securities.
C. Assuming that Smith Bank and other banks now lend out all
i. Demand deposits throughout the banking system
ii. Total reserves throughout the banking system
D. Suppose that the country's central bank purchases $1,000 of Smith Bank's holdings of government securities as part of its open market operations. Do Smith Bank's
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