Question

Consider the balance sheet for the Georgia bank as presented below.

Georgia Bank Balance Sheet
Assets		Liabilities
Government securities	$1,600	Checking accounts	$4,000
Required Reserves	$400	Net Worth	$1,000
Excess Reserves	$0
Loans	$3,000
Total Assets	$5,000	Total Liabilities	$5,000

Using a required reserve ratio of 10% and if the bank keeps no excess reserves, write the changes to the balance sheet for each of the following scenarios:

Steve withdraws $200 from his checking account.

The Fed buys $2,000 in government securities from the bank.

Answer 1

Answer 1 : In scanerio 1 when steve withdraw $200 from his checking account than in the liability side of the balance sheet the new balance of checking account is $3800 and total liability is $4800 where as in asset side of the balance sheet new reserve has been $380 where as new loan amount is $2820

Balance sheet of the Geogria Bank after the effect :

Assets	Amount	Liabilities	Amount
Government Securities	$1600	Checking account	3800
Required reserve	$380	Net worth	$1000
Excess reserve	0
Loan	$2820
Total assets	$4800	Total liabilities	$4800

Answer 2 : The fed buys government securities from the bank :

The maximum government securities bank have $1600 so the fed can buy it only where reserve has been increased by $1600+$400 =$2000 . But the maximum limit is 10% . It depend upon the bank policy that they can convert into the loan

Balance sheet of the Geogria Bank after the effect :

Assets	Amount	Liabilities	Amount
Government securities	0	Checking deposits	4000
Required reserve	400	Net worth	1000
Excess reserve	0
Loans	4600
Total assets	$5000	Total liabilities	$5000