Discussion:
Suppose that the reserve requirement is 10% and the balance sheet of the People's National bank looks like the accompanying example.
a.) What are the required reserves of People's National Bank? Does the bank have any excess reserves?
b.) What is the maximum loan that the bank could extend?
c.) Indicate how the bank's balance sheet would be altered if it extended this loan?
d.) Suppose that the required reserves were 20%. If this were the case, would the bank be in a position to extend any additional loans? Explain?
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Assets
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Liabilities
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Vault Cash
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20,000
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Checking deposits
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200,000
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Deposits at Fed
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30,000
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Net Worth
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15,000
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Securities
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45,000
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Loans
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120,000
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