Question

Can someone show your calculations and review for errors. I thought the answer would be "Yes" because the bank reserved a percentage and can lend out the rest. The "show your calculation" is not there to help. Can someone show how to get the answer? Thanks in advance.

1. uppose Leo Messi deposits $3,500 cash in the Humongous National Bank. The required reserve ratio in this economy is 12%

Answer:   

Humongous National’s T-account:

ASSETS	Liabilities
TR=3500	D=3500
RR=420
ER=3080

1. As a result of Leo Messi’s deposit, what is the maximum amount (in $) that Humongous National can loan out?

Answer: Equal to excess reserve = 3080

1. Now, suppose that Humongous National loans the amount that you found in part b) to Ronaldinho Gaúcho.

Fill out the blanks in the Humongous National Bank’s T-account to reflect this transaction.

Show your calculation.

Answer: ?

Humongous National’s T-account:

ASSETS	Liabilities
TR=420	D=3500
RR=420
ER=3080

1. As a result of this transaction, can Humongous National continue loaning out money using Leo Messi’s initial deposit of $3,500?

Answer: NO (Wouldn't it be "YES?")

1. Now, suppose that Ronaldinho Gaúcho deposits a loan from Humongous National Bank in the Financial National Bank. The required reserve ratio in this economy is still 12%. Assume that Financial National did not have any previous deposits.

Fill out the blanks in the Financial National Bank’s T-account to reflect this transaction.

Show your calculation.

Answer: ?

Financial National's T-account:   

ASSETS	Liabilities
TR=3080	D=3080
RR=369.6
ER=2710.4

Financial National’s T-account:

1. As a result of Ronaldinho’s transaction, what is the maximum amount (in $) that Financial National can loan out?

Answer: 2710.4

1. Now, suppose that Financial National loans $1,500 to Gianluigi Buffon.

Fill out the blanks in the Financial National Bank’s T-account to reflect this transaction.

Show your calculation.

Answer: ?

Financial National’s T-account:

ASSETS	Liabilities
TR=369.4	D=3080
RR=369.4
Loan=2710.4

1. As a result of this transaction, can Financial National continue loaning out money using Ronaldinho’s initial deposit?

Answer: NO (?)

1. Suppose Financial National and Humongous National are the only 2 commercial banks in the economy. The required reserve ratio is 12%.

Calculate by how much money supply in this economy can go up as a result of Leo Messi’s initial deposit of $3,500.

Show ALL STEPS of your calculations and the unit of account.

Answer:

Change in D = ?

Change in MS = ?

(Money multiplier=1/ required reserve ratio=1/0.12=8.33

Total money supply=3500*8.33=29,166.67)

Answer 1

Answer a) Required reserve 12%. Initial deposit is $3500

RR = 12 % of deposits i. e. 12 % of $3500 = $420

Excess reserve= deposits - RR

=$3500 - 420 = $3080

Answer b)

As a result of initial deposit Humongous National can loan out $ 3500 ( equal to excess reserve) because every bank has to maintain a specified percentage of deposit as a required reserve and excess reserve can be lent out by bank.

Answer C) Humongous National’s T-account:

ASSETS Liabilities

RR=420 Deposits =3500

Loan to Ronaldinho Gaúcho.= 3080

Answer D) As a result of this transaction, can Humongous National continue loaning out money using Leo Messi’s initial deposit of $3,500?

- No, because Ronaldinho Gaucho have not deposited $3080 into bank. This amount is held by public and not hold by bank.

Answer E.) Financial National's T-account:

ASSETS Liabilities

RR=369.6 Deposits=3080

Excess Reserve=2710.4

Explanation - Required reserve is 12%.

Required reserve against deposits of $3080

RR= 12% of $3080 = $369.6

Excess Reserve = deposits - RR

= $3080 -$369.6

=2710.4