Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 20%. Brian, a Southeast Mutual Bank customer, deposits $1,500,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities 2 categories under Assets: 1. Building and furniture, Deposits, Loans, Net worth or Reserves 2. $300,000 or $1,200,000 or $1,500,000 or $3,600,000 2 Categories under Liabilities: 1. Building and furniture, Deposits, Loans, Net worth or Reserves 2. $300,000 or $1,200,000 or $1,500,000 or $3,600,000 Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. 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) 1,500,000 Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Alyssa, who immediately uses the funds to write a check to Tim. Tim deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to Edison, who writes a check to Crystal, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess reserves to Hilary in turn. Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar. Increase in Deposits Increase in Required Reserves Increase in Loans (Dollars) (Dollars) (Dollars) Southeast Mutual Bank Walls Fergo Bank PJMorton Bank Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,500,000 injection into the money supply results in an overall increase of ( $750,000 or $6,00,000 or $7,500,000) in demand deposits

Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 20%. Brian, a Southeast Mutual Bank customer, deposits $1,500,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Assets Liabilities 2 categories under Assets: 1. Building and furniture, Deposits, Loans, Net worth or Reserves 2. $300,000 or $1,200,000 or $1,500,000 or $3,600,000 2 Categories under Liabilities: 1. Building and furniture, Deposits, Loans, Net worth or Reserves 2. $300,000 or $1,200,000 or $1,500,000 or $3,600,000 Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%. 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) 1,500,000 Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Alyssa, who immediately uses the funds to write a check to Tim. Tim deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to Edison, who writes a check to Crystal, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess reserves to Hilary in turn. Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar. Increase in Deposits Increase in Required Reserves Increase in Loans (Dollars) (Dollars) (Dollars) Southeast Mutual Bank Walls Fergo Bank PJMorton Bank Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,500,000 injection into the money supply results in an overall increase of ( $750,000 or $6,00,000 or $7,500,000) in demand deposits

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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The money creation process

Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans).

Assets

Liabilities

2 categories under Assets:

1. Building and furniture, Deposits, Loans, Net worth or Reserves

2. $300,000 or $1,200,000 or $1,500,000 or $3,600,000

2 Categories under Liabilities:

1. Building and furniture, Deposits, Loans, Net worth or Reserves

2. $300,000 or $1,200,000 or $1,500,000 or $3,600,000

Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 20%.

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)
1,500,000

Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Alyssa, who immediately uses the funds to write a check to Tim. Tim deposits the funds immediately into his checking account at Walls Fergo Bank. Then Walls Fergo Bank lends out all of its new excess reserves to Edison, who writes a check to Crystal, who deposits the money into her account at PJMorton Bank. PJMorton lends out all of its new excess reserves to Hilary in turn.

Fill in the following table to show the effect of this ongoing chain of events at each bank. Enter each answer to the nearest dollar.

	Increase in Deposits	Increase in Required Reserves	Increase in Loans
	(Dollars)	(Dollars)	(Dollars)
Southeast Mutual Bank
Walls Fergo Bank
PJMorton Bank

Assume this process continues, with each successive loan deposited into a checking account and no banks keeping any excess reserves. Under these assumptions, the $1,500,000 injection into the money supply results in an overall increase of ( $750,000 or $6,00,000 or $7,500,000) in demand deposits.

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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