I posted what I got for A through D, but still need E through H 1. Following the
ID: 1215467 • Letter: I
Question
I posted what I got for A through D, but still need E through H
1. Following the balance sheet for The First National Bank (4 points)
The First National Bank
Assets Liabilities
Total reserves: ________ Deposits: $500,000
Required reserves: $20,000
Excess reserves: $80,000
Loans: $ 400,000
Total Assets: $500,000 Total liabilities $500,000
a. What is the required reserve ratio? Show your calculation
20,000 / 100,000 = .2
b. What are the bank’s total reserves? Show your calculation
$20,000 + $80,000 = $100,000
c. How much can the First National Bank safely lend out? Show your calculation
$80,000 (as this is the excess reserves)
d. What is the size of the simple money (deposit) multiplier? What does it tell us?
(1 / .2) = 5
The money multiplier tells us the amount of money that banks generate with each dollar of reserves.
e. By how much will the banking system be able to expand the money supply?
f. If the Fed increases the reserve requirement from your answer to part a to 10 percent, explain verbally and show numerically what will happen to:
Required reserves,
Excess reserves,
The size of the simple money multiplier
The money supply in the economy
g. “When a bank creates loans, it does not create money” True or false. Explain your answer
h. The Happy Bank receives an extra $1,000 of reserves but decides not to lend any of these reserves out. How much deposit creation takes place for the entire banking system? Explain your answer.
Explanation / Answer
E)as the bank has 80000 excess reserves and loan of 400000, so this much amount can be can be able to expand money supply
F)if required reserve is 10 percent then reser=10000 and excess reserve=90000, multiplier=1/0.1=10, money supply would be 490000
G) false, when bank creates loan it creates money in electronic format by crediting the borrower's account although it is not printed money but it is still money.
H) as it is not lending no money is being created. So deposit of 1000 takes place in the banking system