The table below is the combined balance sheet for all the banks in a banking system. Each bank has a target reserve ratio of 5%. Assets (1) (2) Reserves $200 $ $ Loans 1,800 Securities 1,300 Fixed assets Total 300 $3,600 Liabilities/Equity Chequing deposits Shareholders' equity (1) (2) $3,000 $ $ 600 Total $3,600 a. Fill in the blanks in column (1) reflecting the complete effect of all excess reserves being loaned out. b. The maximum possible increase in the money supply is $ c. Returning to the original balance sheet, if the target reserve ratio changes to 10%, the quantity of loans the system be forced to call in will be $ Write in the figures in columns (2) that show this process completed.
The table below is the combined balance sheet for all the banks in a banking system. Each bank has a target reserve ratio of 5%. Assets (1) (2) Reserves $200 $ $ Loans 1,800 Securities 1,300 Fixed assets Total 300 $3,600 Liabilities/Equity Chequing deposits Shareholders' equity (1) (2) $3,000 $ $ 600 Total $3,600 a. Fill in the blanks in column (1) reflecting the complete effect of all excess reserves being loaned out. b. The maximum possible increase in the money supply is $ c. Returning to the original balance sheet, if the target reserve ratio changes to 10%, the quantity of loans the system be forced to call in will be $ Write in the figures in columns (2) that show this process completed.
Principles of Economics 2e
2nd Edition
ISBN:9781947172364
Author:Steven A. Greenlaw; David Shapiro
Publisher:Steven A. Greenlaw; David Shapiro
Chapter27: Money And Banking
Section: Chapter Questions
Problem 18RQ: What is the risk if a bank does not diversify its loans?
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Transcribed Image Text:The table below is the combined balance sheet for all the banks in a banking system. Each bank has a target reserve ratio of 5%.
Assets
(1)
(2)
Reserves
$200
$
$
Loans
1,800
Securities
1,300
Fixed assets
Total
300
$3,600
Liabilities/Equity
Chequing deposits
Shareholders' equity
(1)
(2)
$3,000
$
$
600
Total
$3,600
a. Fill in the blanks in column (1) reflecting the complete effect of all excess reserves being loaned out.
b. The maximum possible increase in the money supply is $
c. Returning to the original balance sheet, if the target reserve ratio changes to 10%, the quantity of loans the system be forced to call
in will be $
Write in the figures in columns (2) that show this process completed.
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