Assets Liabilities Reserves $150,000 Loans 250,000 Deposits $400,000 A: if the f
ID: 1250478 • Letter: A
Question
Assets
Liabilities
Reserves $150,000
Loans 250,000
Deposits $400,000
A: if the fed requires banks to hold 10 percent of deposits as reserves,how much in excess reserves does ABC now hold?
B.assume that all other banks hold only the required amount of reserves.if ABC DECIDES TO REDUCE ITS RESERVES TO ONLY THE REQUIRED AMOUNT ,BY HOW MUCH WOULD THE ECONMY'S MONY SUPPLY INCREASE?
Assets
Liabilities
Reserves $150,000
Loans 250,000
Deposits $400,000
Explanation / Answer
ABC has : Reserves = $150000 Loan = $250000 Deposits = $400000 Reserves required as per Fed = 10% of Deposits = 0.10*400000 = 40000 ($) Excess Reserves held by ABC = 150000 - 40000 = 110000 ($) (ANSWER) If ABC reduce the Reserves to Fed requirement i.e. $40000 , it will lend $110000 to borrowers. Other banks hold required level of Reserves and so no increase in money supply from those banks.This means money circulation will increase by $110000. (ANSWER)