Question

In: Economics

Assume that a bank has checkable deposits of $990, loans of value $813 and reserves at...

Assume that a bank has checkable deposits of $990, loans of value $813 and reserves at $177. The bank then receives a new deposit of $224. The required reserve ratio is 11%. After the new deposit but prior to asset transformation, the bank has excess reserves of _____, and then after asset transformation, so that excess reserves go to zero, the bank's total value of loans is now _____ .

1) 267.46 , 1080.46

2) 267.46 , 1014.54

3) 255.14 , 1080.46

4) 255.14 , 1014.54

Expert Solution

We have,

Reserve Ratio = 11% = 0.11

Initially before new deposits,

Checkable deposits = $ 990

Reserves = $ 177

Required Reserves (RR₁) = Reserve Ratio * Checkable deposits

= 0.11 * $990 = $108.9

Excess Reserves (ER₁) = Reserves - Required Reserves

= $177 - $108.9 = $68.1

After new deposit of $224 but prior to asset transformation,

Required reserves from new deposit = 0.11 * $224

= $24.64

Excess Reserves from New Deposits (ER₂) = New Deposit - Required Reserves from new deposits

= $224 - $24.64

= $199.36

Hence, total excess reserves after the new deposit of $224 but prior to asset transformation is ER₁ + ER₂ = $68.1 + $199.36 = $267.46.

After asset transformation so that excess reserves go to zero,

Final deposits = $990 + $224 = $1214

Final Required Reserves = 0.11* $1214 = $133.54

Final Loan Value = Final Deposits - Final Required Reserves

= $1214 - $133.54

= $1080.46

Hence, correct answer of this question is option (1).

Rahul Sunny answered 2 years ago

A commercial bank has checkable deposits of $880, loans of $842,reserves at $80 and capital...

A commercial bank has checkable deposits of $880, loans of $842, reserves at $80 and capital of $42. What is the maximum write down in the value of the bank's loans that will keep bank capital from falling below $20?Group of answer choices$22$25$34$75

Assume that a bank has $12 million in reserves and checkable deposits of $10 million and...

Assume that a bank has $12 million in reserves and checkable deposits of $10 million and the required reserve ratio is 10%. The maximum amount of loans this bank can make is-

Asset Type Asset Amount Liability Liability Amount Reserves Checkable Deposits Loans Bank Capital Assume the government...

Asset Type Asset Amount Liability Liability Amount Reserves Checkable Deposits Loans Bank Capital Assume the government of Smithville uses measures of monetary aggregates similar to those used by the United States. The central bank of Smithville imposes a required reserve ratio of 20 percent. For additional information, refer to the figures below: Bank Deposits held at the central bank = $400 million Currency and coin held by the public = $500 million Currency and coin in bank vaults = $200...

Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is...

Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is 10 percent. Households deposit $15,000 in currency into the bank and that currency is added to reserves. What level of excess reserves does the bank now have?

A bank holds its reserves as and . a. securities; loans b. securities; deposits at...

A bank holds its reserves as ________ and ________. a. securities; loans b. securities; deposits at the Federal Reserve c. vault cash; deposits at the Federal Reserve d. vault cash; loans If the Fed wishes to decrease the supply of money and credit, it may sell government securities, raise the discount rate, or lower required reserve ratios. True False

Explain what happens to a commercial bank’s reserves and checkable deposits after it has made a...

Explain what happens to a commercial bank’s reserves and checkable deposits after it has made a loan.

Assets: $200 Reserves; $5000 Short term Bonds; $6000 Long Term Loans Liabilities: $7000 Checkable Deposits; $3000 Fixed...

Assets: $200 Reserves; $5000 Short term Bonds; $6000 Long Term Loans Liabilities: $7000 Checkable Deposits; $3000 Fixed Rate Borrowings; $1200 Capital What is the equity multiplier for this bank? Why would a bank want to increase its EM? Why would a bank decrease its EM?

Bank XYZ Balance Sheet ASSETS LIABILITIES Total reserves $3 comma 800 comma 000 Checkable deposits...

Bank XYZ Balance Sheet ASSETS LIABILITIES Total reserves $3 comma 800 comma 000 Checkable deposits $4 comma 000 comma 000 Required reserves $800 comma 000 Excess reserves $3 comma 000 comma 000 Loans $200 comma 000 The required reserve ratio is 0.20. If the Federal Reserve buys $1,000,000 worth of bonds from a bond dealer who has her account at Bank XYZ above and she deposits the entire $1,000,000 into a checking account at Bank XYZ, what will...

consider the following data: currency 850 billion checkable deposits 700 billion bank reserves. 700 billion Calculate...

consider the following data: currency 850 billion checkable deposits 700 billion bank reserves. 700 billion Calculate ghe values of currency-to- deposit ratio, the ratio of total reserves to deposits, the monetary base, the money multiplier and the M1 money supply

a. A bank has $50,000 in deposits and has $6,250 in reserves. What is the maximum...

a. A bank has $50,000 in deposits and has $6,250 in reserves. What is the maximum amount that the money supply could increase if $10,000 is deposited to this bank and the reserve requirement ratio is 12.5%? b. What is the change in the money supply when the Fed sells $500 worth of bonds and the required reserve ratio is 20 percent assuming banks hold no excess reserves?