Assume: a required reserve ratio of 10%, this bank is the only one with excess reserves, banks do not wish to hold excess reserves and the public does not wish to increase its cash holdings. What is the maximum amount of new money the banking system can create?A) 900,000B) 500,000C) 400,000D) 4,000,000E) 5,000,000 LAST CHANCE BANK OF TOMBSTONEASSETScash in the vault:deposits at FedUS treasury bonds:loans:Building:TOTALS:O $900,000$500,000$400,000O $4,000,000$700,000$100,000O $5,000,000BALANCE SHEETLIABILITIES &demand deposits:$300,000$3,900,000$2,000,000$7,000,000Assume: a required reserve ratio of 10%, this bank is the only one with excess reserves, banks do not wish to holdexcess reserves and the public does not wish to increase its cash holdings. What is the maximum amount of newmoney the banking system can create?capital stock:TOTALS:NET WORTH$4,000,000$3,000,000$7,000,000

Excess reserves are the term used by banks and other types of organisations to describe capital…

Answered: Assume: a required reserve ratio of…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume: a required reserve ratio of 10%, this bank is the only one with excess reserves, banks do not wish to hold excess reserves and the public does not wish to increase its cash holdings. What is the maximum amount of new money the banking system can create?

A) 900,000

B) 500,000

C) 400,000

D) 4,000,000

E) 5,000,000

LAST CHANCE BANK OF TOMBSTONE
ASSETS
cash in the vault:
deposits at Fed
US treasury bonds:
loans:
Building:
TOTALS:
O $900,000
$500,000
$400,000
O $4,000,000
$700,000
$100,000
O $5,000,000
BALANCE SHEET
LIABILITIES &
demand deposits:
$300,000
$3,900,000
$2,000,000
$7,000,000
Assume: a required reserve ratio of 10%, this bank is the only one with excess reserves, banks do not wish to hold
excess reserves and the public does not wish to increase its cash holdings. What is the maximum amount of new
money the banking system can create?
capital stock:
TOTALS:
NET WORTH
$4,000,000
$3,000,000
$7,000,000

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