Use the balance sheet for Leon’s Bank below to answer the following questions. Assets Liabilitis Required reserves $1,000 Demand deposits $10,000 Excess reserves $0 Owner’s equity $10,000 Customer loans $8,000 Government securities (bonds) $7,000 Building and fixtures $4,000 1. Calculate the required reserve ratio. Explain how you got your answer. 2. Suppose that an individual deposits $5,000 of cash into her checking account. What is the immediate effect of the cash deposit on the M1 measure of the money supply? Explain. 3. What is the dollar value of the bank’s required reserves after the $5,000 deposit in question #7? Explain.
Part 2 - Practice- Use the
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Assets |
Liabilitis |
|
|
|
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$10,000 |
|
Excess reserves $0 |
Owner’s equity |
$10,000 |
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Customer loans $8,000 |
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Government securities (bonds) $7,000 |
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|
Building and fixtures $4,000 |
1. Calculate the
2. Suppose that an individual deposits $5,000 of cash into her checking account. What is the immediate effect of the cash deposit on the M1 measure of the money supply? Explain.
3. What is the dollar value of the bank’s required reserves after the $5,000 deposit in question #7? Explain.
4. What is the dollar value of the bank’s excess reserves after the $5,000 deposit in question #7? Explain.
5. Calculate the maximum amount that the money supply can change as a result of the $5,000 deposit in question #7. Show your work.
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