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Below is the balance sheet of a bank. The reserve requirement is 3 percent on the first $30 million of transactions deposits and 10 percent on transactions deposits in excess of $30 million. The bank holds no required clearing balances.

(Amounts on the balance sheet are in millions of dollars.)
Assets Liabilities + Capital
Reserves $15.9 Transactions deposits $180.0
Loans $150.0 Equity capital $ 20.0
Securities $34.1
Total $200.0 Total $200.0

a find out the bank's excess reserves.

b Suppose that the bank sells $5 million in securities to get new cash. Draw up the bank's balance sheet after this transaction. What are the bank's excess reserves?

c Suppose that the bank makes a loan to a customer equal to the amount of its excess reserves from part b. Draw up the bank's balance sheet before the customer spends the proceeds of the loan. What are the bank's excess reserves?

d Now suppose that the customer spends the proceeds of the loan. Draw up the bank's balance sheet, and find out its excess reserves.

Microeconomics, Economics

  • Category:- Microeconomics
  • Reference No.:- M946405

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