3 answers

ECO 2251

Question:

Suppose that Big Bucks Bank has the simplified balance sheet shown below and that the reserve ratio is 10 percent:
Instructions: All answers to this question should be entered as whole numbers.
________________________________________ ________________________________________
Assets Liabilities and net worth
(1) (2) (1' ) (2' )
________________________________________ ________________________________________
Reserves
$24,000
$
$
Checkable deposits $ 100,000 $
$
Securities
38,000
$
$
Loans
38,000
$
$
a. What is the maximum amount of new loans that Big Bucks Bank can make? $
Show in columns 1 and 1' how the bank's balance sheet will appear after the bank has lent this additional amount.
b. By how much has the supply of money changed? $
c. How will the bank’s balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against this bank? Show this new balance sheetin column 2 and 2'.
d. Revisit parts a., b., and c., and provide answers below based on the assumption that the reserve ratio is now 5 percent.
What is the maximum amount of new loans that this bank can make? $
Show in column 3 and 3' (below) how the bank’s balance sheet will appear after the bank has lent this additional amount.
By how much has the supply of money changed? $
________________________________________ ________________________________________
Assets Liabilities
(3) (4) (3' ) (4' )
________________________________________ ________________________________________
Reserves $24,000
$
$
Checkable deposits $ 100,000 $
$
Securities 38,000
$
$
Loans 38,000
$
$
How will the bank’s balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against this bank? Show this new balance sheet incolumn 4 and 4' in the table above.

Answers

=$zero
c. How will the bank’s balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against this bank? Show thisnew balance sheet in column 2 and 2'.
Column 2 of Assets (top to bottom): $24,000; $38,000; $38,000. Column 2 of Liabilities; $100,000

.

=$zero


b. By how much has the supply of money changed? $
.

a. What is the maximum amount of new loans that Big Bucks Bank can make? $


Reserves$24,000

Securities 38,000

Loans 38,000

Total= $ 100,000

Checkable deposits $ 100,000

.

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