Republic of Bankland has three banks in the economy. The governor of the central bank of the Republic of Bankland has recently announced that the cash in the public hands is $5,000 and encouraged banks to increase its lending and deposit taking activities. The month following the announcement, Bank National increased its lending by $400 and one of its customers paid $300 to a client of Bank State and another customer paid $100 to client of Bank County. Bank State also increased its lending by $400 and its customers paid equally to clients of Bank County and Bank National. (a) What is the size of the money stock when the governor made the announcement? (b) Calculate the reserve ratio for each bank and for the system as a whole at the time of announcement. (c) Show the new balance sheet position for each bank following the lending activities. (d) What is the size of the money stock following the lending activities? (e) What is the reserve ratio for each bank and for the system as a whole following the lending activities? Bank National Bank State Bank County Assets Liabilities & Equity Assets Liabilities & Equity Assets Liabilities & Equity Cash 100 Deposits 2000 Cash 450 Deposits 1500 Cash 200 Deposits 1000 Reserve 500 Reserve 150 Reserve 100 1400 Equity 2000 500 Loans 1000 Equity 1300 Loans 2000 Equity 600 Loans 300 2600 2600 2000 1300
Republic of Bankland has three banks in the economy. The governor of the central bank of the Republic of Bankland has recently announced that the cash in the public hands is $5,000 and encouraged banks to increase its lending and deposit taking activities. The month following the announcement, Bank National increased its lending by $400 and one of its customers paid $300 to a client of Bank State and another customer paid $100 to client of Bank County. Bank State also increased its lending by $400 and its customers paid equally to clients of Bank County and Bank National. (a) What is the size of the money stock when the governor made the announcement? (b) Calculate the reserve ratio for each bank and for the system as a whole at the time of announcement. (c) Show the new balance sheet position for each bank following the lending activities. (d) What is the size of the money stock following the lending activities? (e) What is the reserve ratio for each bank and for the system as a whole following the lending activities? Bank National Bank State Bank County Assets Liabilities & Equity Assets Liabilities & Equity Assets Liabilities & Equity Cash 100 Deposits 2000 Cash 450 Deposits 1500 Cash 200 Deposits 1000 Reserve 500 Reserve 150 Reserve 100 1400 Equity 2000 500 Loans 1000 Equity 1300 Loans 2000 Equity 600 Loans 300 2600 2600 2000 1300
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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help me to answer part A, B please
Transcribed Image Text:Republic of Bankland has three banks in the economy. The governor of the central bank of the Republic of Bankland has recently
announced that the cash in the public hands is $5,000 and encouraged banks to increase its lending and deposit taking activities.
The month following the announcement, Bank National increased its lending by $400 and one of its customers paid $300 to a client
of Bank State and another customer paid $100 to client of Bank County. Bank State also increased its lending by $400 and its
customers paid equally to clients of Bank County and Bank National.
(a) What is the size of the money stock when the governor made the announcement?
(b) Calculate the reserve ratio for each bank and for the system as a whole at the time of announcement.
(c ) Show the new balance sheet position for each bank following the lending activities.
(d) What is the size of the money stock following the lending activities?
(e) What is the reserve ratio for each bank and for the system as a whole following the lending activities?
Bank State
Bank County
Bank National
Liabilities & Equity
100 Deposits
Liabilities & Equity
450 Deposits
Assets
Assets
Assets
Liabilities & Equity
Cash
2000 Cash
1500 Cash
200 Deposits 1000
Reserve
500
Reserve
150
Reserve
100
Loans
2000 Equity
600 Loans
1400 Equity
500 Loans
1000 Equity
300
2600
2600
2000
2000
1300
1300
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