Assets Liabilities and Net Worth Reserves $2,000 Loans $25,000 Deposits $20,000
ID: 1132058 • Letter: A
Question
Assets Liabilities and Net Worth
Reserves $2,000 Loans $25,000
Deposits $20,000 Net Worth $30,000
The above table shows a part of the balance sheet for the entire banking system. Assume that the banking system is fully loaned out
The Fed changes the required reserve ratio to 5%. How much money will be
created in the economy if banks do not keep any excess reserves and people do not hold any currency?
A.
$1,000
B.
$5,000
C.$10,000
D.$15,000
E.None of the above
can you please show the specific way yo calculate this?
Explanation / Answer
Required reserve of bank = 5% of deposits = 5% of 20,000 = $ 1000
Excess reserve of bank = Actual reserve - Required reserve = 2000 - 1000 = $ 1000
So, bank will loan out this excess reserve of $ 1000 in the economy.
A) $ 1000 is the answer.