LAST CHANCE BANK OF TOMBSTONE BALANCE SHEET --- ASSETS LIABILITIES & NET WORTH demand deposits: $5,000,000 $900,000 $100,000 $300,000 $3,700,000 $2,000,000 cash in the vault: deposits at Fed US treasury bonds: loans: Building: capital stock: $2,000,000 TOTALS: $7,000,000 TOTALS: $7,000,000 23. Assume: a required reserve ratio of 20%, banks do not wish to hold excess reserves and the public does not wish to increase its cash holdings. Now assume this bank has just received an additional $100,000 in cash as a loan from another bank, such that the cash it will hold in its vault will increase to $1,000,000. What is the maximum amount of new money the banking system can create? O $900,000 O $400,000 O $500,000 O $1,000,000 O $4,000,000

LAST CHANCE BANK OF TOMBSTONE BALANCE SHEET --- ASSETS LIABILITIES & NET WORTH demand deposits: $5,000,000 $900,000 $100,000 $300,000 $3,700,000 $2,000,000 cash in the vault: deposits at Fed US treasury bonds: loans: Building: capital stock: $2,000,000 TOTALS: $7,000,000 TOTALS: $7,000,000 23. Assume: a required reserve ratio of 20%, banks do not wish to hold excess reserves and the public does not wish to increase its cash holdings. Now assume this bank has just received an additional $100,000 in cash as a loan from another bank, such that the cash it will hold in its vault will increase to $1,000,000. What is the maximum amount of new money the banking system can create? O $900,000 O $400,000 O $500,000 O $1,000,000 O $4,000,000

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Big bucks bank Assets Liabilities Total reserves $30mm demand deposits $190mm Loans $100mm Bonds $100mm Stockholder equity $40 mm Suppose the required reserve ratio is 10%. What is the maximum amount of money Big buck bank can create? If the reserve ratio is increased to 14%, what is the maximum amount of money BBB can create? 3 If the reserve ratio is still at 10% and BBB chose to buy bonds instead of making loans with its excess reserves, what is the maximum amount of money BBB can create? a) From question #1 & #3, if the prospective Loans and Bonds both paid interest of 6.8%, which strategy would be more profitable for BBB? b) If BBB decided to pursue #1 as a strategy, what is the maximum money making potential of the banking…
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