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In: Economics

A bank has ​$255 million in total​ reserves, of which ​$11 million are excess reserves. The...

A bank has ​$255 million in total​ reserves, of which ​$11 million are excess reserves. The bank currently has ​$3 comma 667 million in​ loans, ​$1,000 million in​ securities, and ​$131 million in other assets. The required reserve ratio for transactions deposits is 10 percent.

Calculate the sum of this​ bank's total amount of liabilities and net worth ​

Calculate the additional amount of loans this bank can make to households and firms.

Calculate the current quantity of transactions deposits at this bank

Solutions

Expert Solution

Part 1

Calculate Total assets -

Total assets = Total reserves + Loans + Securities + Other assets

Total assets = $255 million + $3,667 million + $1,000 million + $131 million

Total assets = $5,053 million

The total assets is $5,053 million

The total assets equals the sum of the total amount of liabilities and net worth.

So,

The sum of this bank's total amount of liabilities and net worth is $5,053 million.

Part 2

A bank can make loan up to the excess reserves it held.

The excess reserves with bank are $11 million.

Thus,

The additional amount of loans this bank can make to households and firms is $11 million.

Part 3

Total reserves = $255 million

Excess reserves = $11 million

Required reserves = Total reserves - Excess reserves

Required reserves = $255 million - $11 million

Required reserves = $244 million

Required reserve ratio = 10% or 0.10

Calculate the quantity of transaction deposits -

Transaction deposits = Required reserves/Required reserve ratio

Transaction deposits = $244 million/0.10 = $2,440 million

Thus,

The current quantity of transactions deposits at this bank is $2,440 million.

Rahul Sunny answered 4 months ago
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