Can you please check my answers and t-accounts to see if I am correct. Thank you
ID: 1248302 • Letter: C
Question
Can you please check my answers and t-accounts to see if I am correct. Thank you8. Suppose that a lottery winner deposit $20 million in cash into her transactions accounts at the Bank of America (B of A). Assume a reserve requirement of 25% and no excess reserves in the banking system prior to deposit
(a) Use step 1 in the T-account below to show how her deposit affect
the balance sheet at B of A? 20,000,000
(b) Has the money supply been changed by her deposit? No
(c )Use step 2 below to show the changes at B of A after the bank fully uses its new lending capacity.
(d) How the money supply been change in step 2? Yes
(e) In step 3 the new borrower(s) writes a check for the amount of the loan in step 2. That check is deposited at another bank, and bank B of A pays the other bank when the check clears.
What does the B of A balance sheet look like?
(f) After the entire bank system uses the lending capacity of the intitial ($20 million) deposit, by how much will the following have changed?
Total reserves 8,750,000
Total deposits 20,000,000
Total Loans 15,000,000
Cash held by public 20,000,000
The money supply 35,000,000
Step 1: Winnings Deposits Bank of America
Asset (in millions) Liabilities (in millions)
Reserves: Deposits 20,000,000
Required 5,000,000
Excess 15,000,000
Subtotal 20,000,000
Loans:
Total assets 20,000,000 Total Liabilites 20,000,000
Winnings 20,000,000
Reserve Requirment 25%
Step 2: Loans Made Bank of America
Asset (in millions) Liabilities (in millions)
Reserves: Deposits: 20,000,000
Required 8,750,000
Excess 11,250,000 Loan 15,000,000
Subtotal
Loans: 15,000,000
Total assets 35,000,000 Total Liabilites: 35,000,000
Step 3: Check Clear from Bank of America
Asset (in millions) Liabilities (in millions)
Reserves: Deposits: 20,000,000
Required 5,000,000
Excess 15,000,000
Subtotal 20,000,000
Loans:
Total assets 20,000,000 Total Liabilites: 20,000,000
Explanation / Answer
yes,you are absolutely correct