Problem: Suppose that a bank faces a balance sheet illustrated below, and the required reserve ratio is 20%.
ASSETS LIABILITIES
Reserves $50,000 Deposits $100,000
Loans $50,000
Total $100,000 Total $100,000
Question 1: How much more could this bank loan out without acquiring additional funds?
Question 2: Starting with the balance sheet above, suppose that a large depositor withdraws $50,000. With what action might the bank respond to this withdrawal, assuming other depositors are not available.
Question 3: Draw a new balance sheet reflecting the end result after the changes explained in part B.