Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 10%. Nick, a client of First Main Street Bank, deposits $500,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 10%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 500,000
Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 10%. Nick, a client of First Main Street Bank, deposits $500,000 into his checking account at First Main Street Bank. Complete the following table to reflect any changes in First Main Street Bank's T-account (before the bank makes any new loans). Assets Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 10%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) (Dollars) 500,000
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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![**Banking Reserves and Deposits: An Educational Overview**
**Scenario:**
Consider three banks: First Main Street Bank, Second Republic Bank, and Third Fidelity Bank, all of which currently have zero excess reserves. The required reserve ratio is set at 10%. Nick, a client of First Main Street Bank, makes a deposit of $500,000 into his checking account at the same bank.
**Bank T-Account Analysis:**
The first step is to adjust First Main Street Bank's T-account, which needs to reflect the changes in its assets and liabilities brought about by Nick's deposit. As the bank has not issued new loans yet, this adjustment focuses solely on the present state of finances.
**Assets and Liabilities Table:**
- **Assets:** Increased by the deposit amount due to a rise in cash reserves.
- **Liabilities:** Increased by the deposit amount since it represents a payable to the customer (Nick).
**Reserve Adjustment Table:**
This table illustrates how a new deposit alters the reserves, assuming a required reserve ratio.
- **Hint:** In the table, if any value reflects a negative change, it should be entered as a negative number.
| Amount Deposited (Dollars) | Change in Excess Reserves (Dollars) | Change in Required Reserves (Dollars) |
|-----------------------------|-------------------------------------|---------------------------------------|
| 500,000 | | |
**Calculations:**
- **Change in Required Reserves:** 10% of $500,000, which is $50,000.
- **Change in Excess Reserves:** The remaining amount after adjusting for required reserves, which is $500,000 - $50,000 = $450,000.
This setup provides a practical understanding of how banks handle deposits based on reserve requirements.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Ffc10228f-3a2e-4a24-9e76-51af60998a9e%2F1ae58ac9-d47f-484e-bee6-0a7bf81dbbe0%2Fmirsox_processed.png&w=3840&q=75)
Transcribed Image Text:**Banking Reserves and Deposits: An Educational Overview**
**Scenario:**
Consider three banks: First Main Street Bank, Second Republic Bank, and Third Fidelity Bank, all of which currently have zero excess reserves. The required reserve ratio is set at 10%. Nick, a client of First Main Street Bank, makes a deposit of $500,000 into his checking account at the same bank.
**Bank T-Account Analysis:**
The first step is to adjust First Main Street Bank's T-account, which needs to reflect the changes in its assets and liabilities brought about by Nick's deposit. As the bank has not issued new loans yet, this adjustment focuses solely on the present state of finances.
**Assets and Liabilities Table:**
- **Assets:** Increased by the deposit amount due to a rise in cash reserves.
- **Liabilities:** Increased by the deposit amount since it represents a payable to the customer (Nick).
**Reserve Adjustment Table:**
This table illustrates how a new deposit alters the reserves, assuming a required reserve ratio.
- **Hint:** In the table, if any value reflects a negative change, it should be entered as a negative number.
| Amount Deposited (Dollars) | Change in Excess Reserves (Dollars) | Change in Required Reserves (Dollars) |
|-----------------------------|-------------------------------------|---------------------------------------|
| 500,000 | | |
**Calculations:**
- **Change in Required Reserves:** 10% of $500,000, which is $50,000.
- **Change in Excess Reserves:** The remaining amount after adjusting for required reserves, which is $500,000 - $50,000 = $450,000.
This setup provides a practical understanding of how banks handle deposits based on reserve requirements.
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