You are given the following balance sheet of the Summer Bank (21)                     Balance sheet of the Winter bank Assets Liabilities   Cash                             $ 8,000 Deposited with the Fed   $ 5,000   Loans                           $ 117,000      Deposits $ 80,000   Capital $ 50,000 Total                             $ 130,000 Total      $ 130,000   The required reserve ratio (RRR) on all deposits is 5%   d,What would be the excess reserves of this bank after the RRR is changed to 4%?   e.How much new amount of loan will this bank be able to create with the RRR of 4%?

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A:

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A: Answer to the question is as follows :

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Q: Part d

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A:

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Required Reserve and Excess Reserve Analysis

A required reserve is an amount of cash that banks must keep with themselves, which is certain percentage of the deposits made by their customers. Required reserve is a percentage of the bank's deposits that the respective bank must have on each overnight. The percentage rate is set and determined by the nation’s central bank. It is important to have such funds accumulated to meet its uncertain obligations, sudden liabilities and withdrawals. Required reserve is also known as reserve ratio. Reserve ratio is an important tool to control the money supply.