Principles of Economics, 7th Edition (MindTap Course List)
7th Edition
ISBN: 9781285165875
Author: N. Gregory Mankiw
Publisher: Cengage Learning
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Question
Chapter 29, Problem 4QCMC
To determine
The leverage ratio and the asset of the bank.
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A bank has a capital of $200 and a leverage ratio of 5. If the value of the bank's assets declines by 10 percent, then its capital will be reduced to
a. $100.
b.$150.
c. $180.
d. $185.
Assets
Liabilities and Equity
Reserves $5,000
Demand deposits $20,000
Business loans $10,000
Student loans $8,000
Government securities $2,000
Equity (Net worth) $5,000
Total assets $25,000
Total liabilities and equity $25,000
The following is a balance sheet for Smith Bank. Assume a 10% reserve requirement.
A. Calculate a 10% reserve requirement
B. Calculate the maximum amount of additional loans that Smith Bank can make without selling its holdings of government securities.
C. Assuming that Smith Bank and other banks now lend out all excess reserves, calculate the maximum possible change in the following:
i. Demand deposits throughout the banking system
ii. Total reserves throughout the banking system
D. Suppose that the country's central bank purchases $1,000 of Smith Bank's holdings of government securities as part of its open market operations. Do…
need E,F,G
Chapter 29 Solutions
Principles of Economics, 7th Edition (MindTap Course List)
Ch. 29.1 - Prob. 1QQCh. 29.2 - Prob. 2QQCh. 29.4 - Prob. 4QQCh. 29 - Prob. 1QRCh. 29 - Prob. 2QRCh. 29 - Prob. 3QRCh. 29 - Prob. 4QRCh. 29 - Prob. 5QRCh. 29 - Prob. 6QRCh. 29 - Prob. 7QR
Ch. 29 - Prob. 8QRCh. 29 - Prob. 9QRCh. 29 - Prob. 10QRCh. 29 - Prob. 1QCMCCh. 29 - Prob. 2QCMCCh. 29 - Prob. 3QCMCCh. 29 - Prob. 4QCMCCh. 29 - Prob. 5QCMCCh. 29 - Prob. 6QCMCCh. 29 - Prob. 1PACh. 29 - Prob. 2PACh. 29 - Prob. 3PACh. 29 - Prob. 4PACh. 29 - Prob. 5PACh. 29 - Prob. 6PACh. 29 - Prob. 7PACh. 29 - Prob. 8PACh. 29 - Prob. 9PACh. 29 - Prob. 10PACh. 29 - Prob. 11PA
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- A bank has deposits of 400. It holds reserves of 50. It has purchased government bonds worth 70. It has made loans of 500. Set up a T-account balance sheet for the bank, with assets and liabilities, and calculate the banks net worth.arrow_forwardRespond to the question with a concise and accurate answer, along with a clear explanation and step-by-step solution, or risk receiving a downvote.arrow_forwardA bank has the following balance sheet: Assets Liabilities Rate-sensitive $100 million Rate-sensitive $75 million Fixed-rate $100 million Fixed-rate $125 million Explain what would happen to bank profits if the interest rates in the economy go down?arrow_forward
- Assuming that the reserve ratio is 10%, what amount of excess reserves are held by with the bank balance sheet listed below? Assets Liabilities & Net Worth Reserves $280,000 Checking deposits $2,800,000 Loans Outstanding $2,920,000 Total $3,200,000 Net Worth Stockholders' Equity $400,000 Total $3,200,000 a. $240,000 b. zero c. $320,000 d. $280,000arrow_forwardA commercial bank has checkable-deposit liabilities of $500,000, reserves of $150,000, and a required reserve ratio of 20 percent. The amount by which a single commercial bank and the amount by which the banking system can increase loans are respectively: Select one: a. $30,000 and $150,000 b. $50,000 and $250,000 c. $50,000 and $500,000 d. $100,000 and $500,000arrow_forwardThe Oxnard City Bank has deposits of $800 million. It has reserves of $80 million and $300 million government bonds. The Oxnard City bank also owns $750 million loans. What is the value of the Oxnard City Bank’s total liabilities in millions?arrow_forward
- For all six questions, please round answers to one decimal place. Consider a bank with $500 million in loans and $375 in deposits. Calculate the bank's net worth. Calculate the bank's leverage ratio. Suppose that $50 million of the bank's loans fail and become worthless. What is the bank's net worth now? What is its rate of return on equity? Imagine that the bank still has $500 million in loans, but now has deposits worth $275 What is the bank's new leverage ratio? Suppose $50 million of the bank's loans fail. Calculate the bank's new rate of return on equity.arrow_forwardA commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are: Select one: a. $50,000 b. $100,000 c. $900,000 d. $1 millionarrow_forwardUse the following balance sheet for the ABC National Bank in answering the next question(s). Assume the required reserve ratio is 20 percent. Assets Liabilities & Net Worth Reserves $27,000 Demand deposits $110,000 Loans 50,000 Capital stock 200,000 Securities 33,000 Property 200,000 22. This bank can safely expand its loans by a maximum of: * $12,000. $7,000. $25,000. O $5,000.arrow_forward
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