Assume that the Ahearn Bank & Trust has the following balance sheet items:
• Reserves (R): $25 million• Securities Receivable (Sec Rec): $60 million• Loans Receivable (L Rec): $500 million• Other Assets (OA): $15 million• Transactions Deposits (D): $250 million• Nontransactions Deposits (ND): $300 million
a. If Equity Capital is the only item I left o? this list, then how much equity capital does the bank have?
b. Does this bank have any excess reserves?
c. Write out a T-account for this bank. Be sure to:
• split the Reserves account into Required and Excess Reserves.• include the Equity Capital you just calculated• include totals at the bottom
d. If the Federal Reserve wants to increase the money supply, what kind of open market operation will it use?
e. If the amount of the open market operation is $10 million, what balance sheet changes will occur for the bank?
f. How much of the bank’s reserves are required now? How much excess reserves dothey have?
g. Write out a T-account for the bank after the open market operation. Be sure to split the Reserves account into the required and Excess amounts you just calculated in (f).
h. What is the maximum amount of new loans the bank can issue?
i. If the bank issues the maximum amount of new loans, what balance sheet changes will occur for the bank?
j. What is the change in M1 after the issue of new loans? How about M2?