Question

In: Economics

Assets Liabilities Cash $ 6,000 Deposited with the Fed

Assets

Liabilities

Cash $ 6,000

Deposited with the Fed $ 4,000

Loans $ 140,000

Deposits $ 90,000

Capital $ 60,000

Total $ 150,000

The required reserve ratio on all deposits is 8%

a. What, if any, are this bank's excess reserves?

b. How much new amount of loan will this bank be able to create because of the excess reserves?

c. How much new amount of loan will the entire banking system be able to create because of this excess reserves?

d. Answer part a, b and c if the required reserve ratio is changed to 5%.

Expert Solution

If required reserve ratio is 8%

Required reserve = 90,000 * 0.08 = $7,200

a) Excess reserve = Total reserves - Required reserves = (6,000 + 4,000) - 7,200 = $2,800.

b) The new amount of loan this bank will be able to create because of the excess reserves is $2,800.

c) Money multiplier = 1 / Required reserve ratio = 1 / 0.08 = 12.5

The new amount of loan the entire banking system will be able to create because of this excess reserves = $2,800 * 12.5 = $35,500.

d) If required reserve ratio is 5%

Required reserve = 90,000 * 0.05 = $4,500

Excess reserve = Total reserves - Required reserves = (6,000 + 4,000) - 4,500 = $5,500.

The new amount of loan this bank will be able to create because of the excess reserves is $5,500.

Money multiplier = 1 / Required reserve ratio = 1 / 0.05 = 20

The new amount of loan the entire banking system will be able to create because of this excess reserves = $5,500 * 20 = $110,000.

Rahul Sunny answered 1 year ago

Clayton Industries has the following account balances: Current assets $ 24,000 Current liabilities $ 6,000 Noncurrent...

Clayton Industries has the following account balances: Current assets $ 24,000 Current liabilities $ 6,000 Noncurrent assets 82,000 Noncurrent liabilities 40,000 Stockholders’ equity 60,000 The company wishes to raise $37,000 in cash and is considering two financing options: Clayton can sell $37,000 of bonds payable, or it can issue additional common stock for $37,000. To help in the decision process, Clayton’s management wants to determine the effects of each alternative on its current ratio and debt-to-assets ratio. Required a-1. Compute...

Higginbotham, INC Balance Sheet ($000) Assets Liabilities and Stockholder’s Equity Cash

Higginbotham, INC Balance Sheet ($000) Assets Liabilities and Stockholder’s Equity Cash $ 1,500 Marketable Securities 2,500 Accounts Receivable 15,000 Inventory 33,000 Tot. Curr. Assets $52,000 Fixed Assets (net) 35,000 Total Assets $87,000 Accounts Payable $12,500 Notes Payable 12,500 Tot. Current Liab. $25,000 Long-term Debt 22,000 Total Liabilities $47,000 Common Stock (par) 5,000 Paid-in Capital 18,000 Retained Earnings 17,000 Total Stock Equity $40,000 Tot Liab. And Stockholder Equity $87,000 Higginbotham, INC Income Statement ($000)...

A check is received from a customer for goods supplied for cash. Which of assets liabilities...

A check is received from a customer for goods supplied for cash. Which of assets liabilities equity is not part of the transaction? Select one: a. Liabilities b. Assets c. Equity Rent for the factory premises are paid in cash. Which of assets liabilities equity is not part of the transaction? Select one: a. Liabilities b. Equity c. Assets The owner withdraws cash for personal use. Which of assets liabilities equity is not part of the transaction? Select one: a....

1a. How does the auditor verify the existence of assets such as cash and inventory; liabilities...

1a. How does the auditor verify the existence of assets such as cash and inventory; liabilities such as notes payable?-Discuss How would the auditor verify Completeness of sales revenue?-Discuss 1b. Discuss the concept of “reasonable assurance” and the degree of confidence that financial statement users should have in the financial statements?

The three sections on the Statement of Cash Flows are Multiple Choice Assets, Liabilities and Equity...

The three sections on the Statement of Cash Flows are Multiple Choice Assets, Liabilities and Equity Operating, Investing and Financing Revenue, Expenses and Net Income I do not know Beginning cash, Ending cash and Change in cash

Pretzel Company acquired the assets (except for cash) and assumed the liabilities of Salt Company on...

Pretzel Company acquired the assets (except for cash) and assumed the liabilities of Salt Company on January 2, 2020. As compensation, Pretzel Company gave 30,000 shares of its common stock, 15,000 shares of its 10% preferred stock, and cash of $50,000 to the stockholders of Salt Company. On the acquisition date, Pretzel Company stock had the following characteristics: PRETZEL COMPANY Stock Par Value Fair Value Common $ 10 $ 25 Preferred 100 100 Immediately prior to the acquisition, Salt Company's...

Debits: a. Decrease both assets and liabilities. b. Increase assets and decrease liabilities. c. Decrease assets...

Debits: a. Decrease both assets and liabilities. b. Increase assets and decrease liabilities. c. Decrease assets and increase liabilities. d. Increase both assets and liabilities.

Investment A: Year: 0 1 2 3 4 5 Cash flow: -$14,000 $6,000 $6,000 $6,000 $6,000...

Investment A: Year: 0 1 2 3 4 5 Cash flow: -$14,000 $6,000 $6,000 $6,000 $6,000 $6,000 Investment B: Year: 0 1 2 3 4 5 Cash flow: -$15,000 $7,000 $7,000 $7,000 $7,000 $7,000 Investment C: Year: 0 1 2 3 4 5 Cash flow: -$18,000 $12,000 $4,000 $4,000 $4,000 $4,000 The cash flows for three projects are shown above. The cost of capital is 7.5%. If an investor decided to take projects with a payback period two years or...

Preston Company acquired the assets (except for cash) and assumed the liabilities of Saville Company. Immediately...

Preston Company acquired the assets (except for cash) and assumed the liabilities of Saville Company. Immediately prior to the acquisition, Saville Company’s balance sheet was as follows: Book Value Fair Value Cash $ 120,000 $ 120,000 Receivables (net) 192,000 250,000 Inventory 360,000 400,000 Plant and equipment (net) 480,000 600,000 Land 420,000 600,000 Total assets $1,572,000 $1,944,000 Liabilities $ 540,000 $ 600,000 Common stock ($5 par value) 480,000 Other contributed capital 132,000 Retained earnings 420,000 Total equities $1,572,000 Required: A....

Ratio Analysis: Balance Sheet (Millions of $)       Assets   Liabilities and Equity   Cash and securities $  1,554.0...

Ratio Analysis: Balance Sheet (Millions of $)       Assets   Liabilities and Equity   Cash and securities $  1,554.0 Accounts payable $  7,980.0 Accounts receivable 9660.00 Notes payable 5880.00 Inventories   13,440.0 Accruals     4,620.0 Total current assets 24654.00 Total current liabilities 18480.00 Net plant and equipment   17,346.0 Long-term bonds   10,920.0 Total assets 42000.00 Total debt 29400.00     Common stock 3360.00     Retained earnings     9,240.0     Total common equity 12600.00     Total liabilities and equity 42000.00 Income Statement (Millions of $)   Other data:   Sales 58800.00 Shares outstanding (millions) 175.00...