In: Economics
Assets |
Liabilities |
Cash $ 6,000 Deposited with the Fed $ 4,000 Loans $ 140,000 |
Deposits $ 90,000 Capital $ 60,000 |
Total $ 150,000 |
Total $ 150,000 |
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.