Question

Below is the simplified balance sheet of Gorgonzolan commercial banks at some point in time.

Assets

Currency (= reserves) 400,000

Loans 200,000

Liabilities

Deposits 600,000

Assume that the Gorgonzolan commercial banks desire to hold reserves of 40 percent of deposits and that the public holds no currency long term.

Instructions: Enter your responses as whole numbers.

a. Given the data in the balance sheet, the Gorgonzolan commercial banks want to hold in reserves.

b. The Gorgonzolan commercial banks currently have in extra reserves that they would like to lend out.

c. Assuming that no additional reserves enter the Gorgonzolan banking system, the final values of bank reserves, loans, and deposits are:

Final consolidated balance sheet

Assets

Currency Final value of bank reserves=

Loans=

Liabilities

Deposits=

d. The final value of the money supply is: ____ guilders.

Answer 1

a)
Deposits	600,000
Required reserves	240,000	40% of deposits
Existing Reserves	400,000
Excess reserves	160,000
b)
Loans already advanced	200,000
Add: Loans that are lent out out of excess free reserves	160,000
Total Loans	360,000
c)
Assets
Currency Final value of bank reserves	240,000
Loans	360,000
Total assets	600,000
Liabilities
Deposits	600,000
Total liabilities	600,000
d)
Money supply=	Total bank deposits
	Reserve ratio
Money supply=	600,000
	40%
Money supply=	1,500,000

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