Answered: The Required Reserve Ratio is 25% for…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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The Required Reserve Ratio is 25% for all banks. Assuming that all the customers that have outstanding loans have used all of those additional funds to invest in new machinery for their businesses (therefore, the amount of Checkable Deposits is the true liability the bank has to its customers), then $_____________ is the resulting change to the loan creating potential of the whole system (these three banks) as a result of Second National Bank customers depositing an additional $400,000 in their Checkable Deposit accounts. (Do NOT enter the '$' in your response. Enter a whole dollar amount; do NOT enter cents.) in new loans.

First National Bank
Liabilities and Net Worth
Assets
US Treasury Bonds
$450,000
Net Worth
$500,000
Reserves (Cash)
$175,000
Checkable Deposits
$250,000
Loans
$125,000
Second National Bank
Liabilities and Net Worth
Assets
US Treasury Bonds
$100,000
Net Worth
$250,000
Reserves (Cash)
$250,000
Checkable Deposits
$100,000
Third National Bank
Liabilities and Net Worth
Assets
US Treasury Bonds
$900,000
Net Worth
$1,000,000
Reserves (Cash)
$350,000
Checkable Deposits
$500,000
Loans
$250,000

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Follow-up Question

So based on the question asked, we just focus on the change in loan potential creation of the additional deposited $400,000 in the Second National Bank, rather than the new loan can be created from all three banks, is it correct? Please explain further.

Thank you so much in advance.

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Follow-up Question

Will the amount of new loan be affected if the additional $400,000 was deposited in the Second National Bank?

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Follow-up Question

Will the additional $400,000 which was deposited in the Second National Bank affect the new loan?

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