Consider the following simplified balance sheet for a bank:
| Assets |
Liabilities |
| Reserves |
$10,000 |
Deposits |
$70,000 |
| Loans |
$66,000 |
Stockholder's equity |
$6,000 |
a. If the required reserve ratio is 0.10, or 10 percent, how much in excess reserves does the bank hold?
b. What is the maximum amount by which the bank can expand its loans?
c. If the bank makes the loans in part (b), show the immediate effect on the bank's balance sheet.