Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Chapter 25, Problem 6SQP
To determine
The impact on bank’s
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Your bank has the following balance sheet:
Assets
Liabilites
Reserves
$50 million
Checkable Deposits
$200 million
Securites
$50 million
Bank Capital
$50 million
Loans
$150 million
If the required reserve ratio is 10%, what possible actions can the bank manager take if there is an unexpected deposit outflow of $50 million?
Excess reserves are insurance from deposit outflow. Suppose you hold 15 million required reserves and 45 million excess reserves at the central bank. The total interest payment on reserves from the central bank is 0.3%. If you do not hold your excess reserves at the bank, you may take loans and earn 4% in average. What is the cost of holding excess reserve at the central bank?
You just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves
and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round
your answers to the nearest dollar.
If the reserve requirement is 20%, how much will your
deposit increase the total value of checkable bank deposits?
If the reserve requirement is 8%, how much will your deposit
increase the total value of checkable deposits?
Increasing the reserve requirement
decreases
the
money supply.
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Chapter 25 Solutions
Economics For Today
Ch. 25.3 - Prob. 1YTECh. 25 - Prob. 1SQPCh. 25 - Prob. 2SQPCh. 25 - Prob. 3SQPCh. 25 - Prob. 4SQPCh. 25 - Prob. 5SQPCh. 25 - Prob. 6SQPCh. 25 - Prob. 7SQPCh. 25 - Prob. 8SQPCh. 25 - Prob. 9SQP
Ch. 25 - Prob. 10SQPCh. 25 - Prob. 11SQPCh. 25 - Prob. 1SQCh. 25 - Prob. 2SQCh. 25 - Prob. 3SQCh. 25 - Prob. 4SQCh. 25 - Prob. 5SQCh. 25 - Prob. 6SQCh. 25 - Prob. 7SQCh. 25 - Prob. 8SQCh. 25 - Prob. 9SQCh. 25 - Prob. 10SQCh. 25 - Prob. 11SQCh. 25 - Prob. 12SQCh. 25 - Prob. 13SQCh. 25 - Prob. 14SQCh. 25 - Prob. 15SQCh. 25 - Prob. 16SQCh. 25 - Prob. 17SQCh. 25 - Prob. 18SQCh. 25 - Prob. 19SQCh. 25 - Prob. 20SQ
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- If a bank has excess reserves of $20,000 and demand deposit liabilities of $80,000, and if the reserve requirement is 20 percent, then the bank has total reserves of$36,000arrow_forwardDoes the fact that your bank keeps only a fraction of your account balance in reserve worry you? Why don't people rush off to the bank and retrieve their money? What would happen if they did?arrow_forwardSuppose you remove $1,000 from under your mattress and deposit it in First National Bank. Using a balance sheet, show the impact of your deposit on the bank’s assets and liabilities. If the required reserve ratio is 10 percent, what is the maximum amount the bank can loan from this deposit?arrow_forward
- You deposit a $1,000 scholarship check in the bank. If the required reserve ratio is 10 percent, explain how the banking system will create new money and how much money can potentially be created.arrow_forwardThe First National Bank of Townville has $125,000 in U.S. government securities, $200,000 in savings accounts, $300,000 in checking accounts, $50,000 in its reserve account at the Fed, $10,000 of currency in its vault, and loans of $250,000. What is the amount of its reserves? Show your calculations.arrow_forwardWhy can banks continue to hold reserves that are only a fraction of the demand deposits of their customers? Is your money safe in a bank? Why or why not?arrow_forward
- Draw a simple T-account for First National Bank of Me, which has $9000 of deposits, a reserve ratio of 10 percent, and excess reserves of $300.arrow_forwardDoes the fact that your bank keeps only a fraction of your account balance in reserve make you uncomfortable? Why don’t people rush to the bank and retrieve their money? What would happen if they did?arrow_forwardFind the amount of money that would be created in the banking system because of the money multiplier if the required reserve ratio is 14%, and a bank that had been holding $1,000 as excess reserves decides to loan all this money out.arrow_forward
- Third National Bank has reserves of $20,000 and checkable deposits of $100,000. The reserve ratio is 20 percent. Households deposit $20,000 in currency into the bank and that currency is added to reserves. Instructions: Enter your answer as a whole number. What level of excess reserves does the bank now have?arrow_forwardSuppose you remove $1000 from under your mattress and deposit it in first national bank. Using a balance sheet, show the impact of your deposit on the banks assets and liabilities. If the required reserve ratio is 10%, what is the maximum amount the bank can loan from this deposit?arrow_forwardDistinguish between legally required reserves and excess reserves.arrow_forward
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