Assets Liabilities and net worth     1 (a) (b)   1' (a) (b)   Reserves $58     Checkable deposits $200       Securities 42               Loans 100     Suppose the simplified consolidated balance sheet shown below is for the entire commercial banking system and that all figures are in billions of dollars. The reserve ratio is 10 percent.   a. What is the amount of excess reserves in this commercial banking system?            $  billion    b)What is the maximum amount the banking system might lend?              $  billion   Show in columns 1(a) and 1'(a) how the consolidated balance sheet would look after this amount has been lent. Enter these new values in the gray shaded cells of the given table.   What is the size of the monetary multiplier?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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  Assets Liabilities and net worth
    1 (a) (b)   1' (a) (b)
  Reserves $58     Checkable deposits $200    
  Securities 42            
  Loans 100

 

 

Suppose the simplified consolidated balance sheet shown below is for the entire commercial banking system and that all figures are in billions of dollars. The reserve ratio is 10 percent.

 

a. What is the amount of excess reserves in this commercial banking system?    

 

     $  billion 

 

b)What is the maximum amount the banking system might lend?      

 

     $  billion

 

Show in columns 1(a) and 1'(a) how the consolidated balance sheet would look after this amount has been lent. Enter these new values in the gray shaded cells of the given table.

 

What is the size of the monetary multiplier?     

 

     

 

b. Using the original figures, answer the questions in part a assuming the reserve ratio is 5 percent. What is the amount of excess reserves in this commercial banking system?     

 

     $  billion

 

What is the maximum amount the banking system might lend?     

 

     $  billion

 

Show in columns 1(b) and 1'(b) how the consolidated balance sheet would look after this amount has been lent. Enter these new values in the gray shaded cells of the given table.

What is the monetary multiplier?     

What is the resulting difference in the amount that the commercial banking system can lend when the required reserve ratio is 5 percent rather than 10 percent?

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