1. Suppose a bank's balance sheet looks as follows:
|
Assets
|
Liabilities
|
|
Reserves
|
$ 640
|
Deposits
|
$6,000
|
|
Loans
|
5,360
|
|
|
And banks are required to hold reserves equal to 10 percent of deposits.
(a) How much excess reserves does the bank hold?
(b) How much more can this bank lend?
Ans:
(a) $__40________
(b) $__40________
6000/10=600
2. Suppose a bank's balance sheet looks like this:
|
Assets
|
Liabilities
|
|
Reserves
|
|
Deposits
|
$600
|
|
Excess
|
$ 70
|
|
|
|
Required
|
30
|
|
|
|
Loans
|
500
|
|
|
|
Total
|
$600
|
Total
|
$600
|
(a) What is the required reserve ratio?
(b) How much money can this bank still lend?
Ans:
(a)___5_____%
(b) $___70_____
30/600=0.05
2. Suppose that a lottery winner deposits $12 million in cash into her transactions account at the Bank of America (B of A). Assume a reserve requirement of 20 percent, no loans, and no excess reserves in the banking system prior to this deposit.
(a) Use step 1 in the following T-accounts to show how her deposit affects the balance sheet at B of A.
(b) Has the money supply been changed by her deposit?
(c) Use step 2 here to show the changes at B of A after the bank fully uses its new lending capacity.
(d) Has the money supply been changed in step 2?
(e) In step 3 the new borrower(s) writes a check for the amount of the loan in step 2. That check is deposited at another bank, and B of A pays the other bank when the check clears. What does the B of A balance sheet look like now?
(f) After the entire banking system uses the lending capacity of the initial ($12 million) deposit, by how much will the following have changed?
Total reserves
Total deposits
Total loans
Cash held by public
The money supply
Ans:
(a) Step 1:___12,000,000_____________.
Bank of America
|
Assets
(in Millions)
|
Liabilities
(in Millions)
|
|
Reserves required
|
$_2.4__ million
|
Demand deposits
|
$_12___ million
|
|
Excess
|
$__9.6__million
|
|
|
|
Subtotal
|
$__12__ million
|
|
|
|
Loans
|
$___Million
|
|
|
|
Total assets
|
$_12__ million
|
Total liabilities
|
$_12___million
|
12000000x20=240000000
12000000-2400000=9600000
2.4+9.6=12
(b) _No___
(c) Step 2: ________
Bank of America
|
Assets
(in Millions)
|
Liabilities
(in Millions)
|
|
Reserves required
|
$__12___ million
|
Demand deposits
|
$_12____million
|
|
Excess
|
$_____ million
|
|
|
|
Subtotal
|
$_____million
|
|
|
|
Loans
|
$_____ million
|
|
|
|
Total assets
|
$_____million
|
Total liabilities
|
$_____million
|
(c) __yes___
(e) Step 3: _______
Bank of America
|
Assets
(in Millions)
|
Liabilities
(in Millions)
|
|
Reserves required
|
$____million
|
Demand deposits
|
$____ million
|
|
Excess
|
$____million
|
|
|
|
Subtotal
|
$____million
|
|
|
|
Loans
|
$____million
|
|
|
|
Total assets
|
$____million
|
Total liabilities
|
$____ million
|
|
(f)Total reserves: $__12,000,000___ million
Total deposits: $_____million.
Total loans: $__48,000,000___ million.
Cash held by public: $_____ million.
The money supply: $______ million.
|
|
3. Assume that the following data describe the condition of the banking system:
Total reserves $200 billion
Transactions deposits $800 billion
Cash held by public $400 billion
Reserve requirement 0.20
(a) How large is the money supply (M1)?
(b) How large are required reserves?
(c) How large are excess reserves?
(d) By how much could the banks increase their lending activity?
Answers:
(a) $_1200_______billion.
(b) $__160______billion.
(d) $__40____billion.
(d) $___5_____billion.
4. Assume the banking system contains the following amounts:
Total reserves $80 billion
Transactions deposits $800 billion
Cash held by public $100 billion
Reserve requirement 0.10
(a) Are the banks fully utilizing their lending capacity?
(b) What would happen to the money supply initially if the public deposited another $30 billion of cash in transactions accounts?
(c) What would the lending capacity of the banking system be after such a portfolio switch?
(d) How large would the money supply be if the banks fully utilized their lending capacity?
(e) What three steps could the Fed take to offset that potential growth in M1?
Answers:
(a) ___Yes_______
(b) I think the 30 dollar deposit will be a part of the cash held._________
(c) $______billion.
(d) $__900____billion.
(e)(i) _The fed could sell bonds________________________________
(ii) __The fed could increase their reserve requirement______________________________
(iii) _They could increase their discount rates_______________________________
5. Suppose a banking system with the following balance sheet has no excess reserves. Assume that banks will make loans in the full amount of any excess reserves that they acquire and will immediately be able to eliminate loans from their portfolio to cover inadequate reserves.
|
Assets
(in Billions)
|
Liabilities
(in Billions)
|
|
Total reserves
|
$ 30
|
Transactions accounts
|
$400
|
|
Securities
|
$190
|
|
|
|
Loans
|
$180
|
|
|
|
Total
|
$400
|
Total
|
$400
|
(a) What is the reserve requirement?
(b) Suppose the reserve requirement is changed to 5 percent. Reconstruct the balance sheet of the total banking system after all banks have fully utilized their lending capacity.
(c) By how much has the money supply changed as a result of the lower reserve requirement (step b)?
(d) Suppose the Fed now buys $10 billion of securities directly from the banks. What will the banks' books look like after this purchase?
(e) How much excess reserves do the banks have now?
(f) By how much can the money supply now increase?
Answers:
|
Assets
(in Billions)
|
Liabilities
(in Billions)
|
|
Total reserves
|
$_6__
|
Transactions accounts
|
$___
|
|
Securities
|
$___
|
|
|
|
Loans
|
$___
|
|
|
|
Total
|
$___
|
Total
|
$___
|
(c) $____ billion.
(d)
|
Assets
(in Billions)
|
Liabilities
(in Billions)
|
|
Total reserves
|
$ ___
|
Transactions accounts
|
$____
|
|
Securities
|
$___
|
|
|
|
Loans
|
$___
|
|
|
|
Total
|
$___
|
Total
|
$____
|
(e) $____ billion.
(f) $____ billion.