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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