Consider an economy that contains one bank for which the balance sheet is given
ID: 2478126 • Letter: C
Question
Consider an economy that contains one bank for which the balance sheet is given below (there are others, but we only have information on this one bank); banks in this economy must keep 10% of checking (demand deposits) as required reserves, and the public carries a total of $2900 in cash. (Note that cash within a bank is part of reserves, but cash held by the public is part of the money supply.) Assume anything not given or calculable with the information given is $0. Use this information to
Cash $4500
US government bonds $4100
Deposit in the Fed $3500
Loans $10,000
Other bonds $5100
Other assets $5500
Demand deposits $14,000
Savings deposits $5000
Time deposits $3100
Borrowings $2600
Other liabilities $3400
Owner’s equity $4600
use information answer first 6 questions
1) Calculate this bank’s actual reserves.
2) Calculate this bank’s required reserves.
3) Calculate this bank’s excess reserves.
4) How much new money can this bank create by itself, at maximum?
5) How much new money can the entire banking system create, at maximum?
6Calculate M1 money supply for this economy
Cash $4500
US government bonds $4100
Deposit in the Fed $3500
Loans $10,000
Other bonds $5100
Other assets $5500
Demand deposits $14,000
Savings deposits $5000
Time deposits $3100
Borrowings $2600
Other liabilities $3400
Owner’s equity $4600
Explanation / Answer
Consider an economy that contains one bank for which the balance sheet is given