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The Prudential Bank of Canada (PBC) currently has $2000 in cash reserves, $53,000 in loans, $50,000 in deposits, and $5,000 in shareholder equity. It is currently satisfying its target reserve ratio.

a) Show the PBC balance sheet. What is PBC's target reserve ratio?

b) How much "bank capital" does PBC currently have? Explain.

c) Suppose a new customer opens an account at PBC and deposits $2000 into that account. Show PBC's balance sheet immediately after this deposit, and compute PBC's new reserve ratio.

d) Based on part (c), what do you now expect PBC to do, and why? Show the balance sheet after these actions are taken.

e) Starting from the endpoint of your answer to part (d), assume that one of PBC's existing customers withdraws $3000 from their account. What do you expect PBC to do, and why? Show the balance sheet after these actions are taken.

Macroeconomics, Economics

  • Category:- Macroeconomics
  • Reference No.:- M9401915
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