Instructions: Fill in the blanks for each question. Enter numerical answers without commas or dollar signs (e.g., 15000, or -7200 for negative values). Round decimal answers to two places if necessary. Click the "Show Answers" button below each problem to see the correct answers and explanations for that specific problem.
Assume the Required Reserve Ratio is 10%. The First National Bank has the following simplified balance sheet:
| First National Bank | |||
|---|---|---|---|
| Assets | Amount | Liabilities & Equity | Amount |
| Reserves | $20,000 | Demand Deposits | $150,000 |
| Loans | $130,000 | Owner's Equity | $0 |
| Total Assets | $150,000 | Total Liab & Eq | $150,000 |
(a) Calculate First National Bank's initial Required Reserves and Excess Reserves.
(b) Now, assume Sarah deposits $10,000 in cash into her checking account at First National Bank.
(i) After the deposit, what are the new total Reserves and new total Demand Deposits on the balance sheet?
(ii) Calculate the bank's new Required Reserves after the deposit.
(iii) Calculate the bank's new Excess Reserves after the deposit.
(c) What is the immediate change ($ amount) in the M1 measure of the Money Supply resulting from Sarah's cash deposit?
(d) Based on the change in Excess Reserves from part (b)(iii), what is the maximum amount of *new* Loans this single bank can create?
(e) What is the maximum potential *total increase* in Demand Deposits, Loans, and the M1 Money Supply throughout the *entire banking system* resulting from Sarah's $10,000 cash deposit?
Assume the Required Reserve Ratio is 20%. Second Commercial Bank has the following simplified balance sheet:
| Second Commercial Bank | |||
|---|---|---|---|
| Assets | Amount | Liabilities & Equity | Amount |
| Reserves | $50,000 | Demand Deposits | $200,000 |
| Loans | $150,000 | Owner's Equity | $0 |
| Total Assets | $200,000 | Total Liab & Eq | $200,000 |
(a) Calculate Second Commercial Bank's initial Required Reserves and Excess Reserves.
(b) Assume Second Commercial Bank decides to loan out its *entire* initial Excess Reserves to David. David takes the loan, and the funds are credited to his checking account at Second Commercial Bank.
(i) What is the amount of the Loan made to David?
(ii) After the loan is made and credited, what are the new total Loans and new total Demand Deposits on the balance sheet?
(iii) After the loan is made, what are the bank's new Required Reserves?
(iv) After the loan is made, what are the bank's new Excess Reserves?
(c) What is the immediate change ($ amount) in the M1 measure of the Money Supply resulting from the bank making this loan?
(d) If the $10,000 loan is withdrawn and deposited in *another* bank, what is the maximum potential *additional increase* in Demand Deposits, Loans, and the M1 Money Supply generated throughout the *rest of the banking system*?
Assume the Required Reserve Ratio is **10%**. Third State Bank starts with **zero Excess Reserves** and has the following simplified balance sheet:
| Third State Bank | |||
|---|---|---|---|
| Assets | Amount | Liabilities & Equity | Amount |
| Reserves | $20,000 | Demand Deposits | $200,000 |
| Securities | $20,000 | Owner's Equity | $10,000 |
| Loans | $170,000 | ||
| Total Assets | $210,000 | Total Liab & Eq | $210,000 |
(a) Verify the bank's initial Required Reserves and Excess Reserves.
(b) Now, assume Maria withdraws $8,000 in cash from her checking account at Third State Bank.
(i) After the withdrawal, what are the new total Reserves and new total Demand Deposits on the balance sheet?
(ii) Calculate the bank's new Required Reserves after the withdrawal.
(iii) After the withdrawal, calculate the bank's Reserve Shortfall (use a negative number).
(c) Describe two distinct actions the bank could take to meet its reserve requirement *without* calling in loans. (Answers will be provided, no input needed).
(d) What is the maximum potential *total decrease* in Demand Deposits, Loans, and the M1 Money Supply throughout the *entire banking system* as a result of Maria's $8,000 cash withdrawal? (Use negative numbers for decreases).
Assume the Required Reserve Ratio is 10%. Fourth Federal Bank has the following simplified balance sheet:
| Fourth Federal Bank | |||
|---|---|---|---|
| Assets | Amount | Liabilities & Equity | Amount |
| Reserves | $20,000 | Demand Deposits | $200,000 |
| Loans | $180,000 | Owner's Equity | $0 |
| Total Assets | $200,000 | Total Liab & Eq | $200,000 |
(a) Calculate Fourth Federal Bank's initial Required Reserves and Excess Reserves.
(b) Now, assume the Central Bank lends $5,000 to Fourth Federal Bank through the Discount Window.
(i) Immediately after receiving the loan, what is the new value of the bank's Reserves?
(ii) How does this loan appear on the Liabilities side of the bank's balance sheet?
(c) After receiving the $5,000 loan from the Central Bank, calculate the bank's:
(i) New Required Reserves (based on existing deposits).
(ii) New Excess Reserves.
(d) Based on the Excess Reserves calculated in part (c)(ii), what is the maximum amount of *new* Loans this single bank can now create?
(e) What is the maximum potential *total increase* in Demand Deposits, Loans, and the M1 Money Supply throughout the *entire banking system* resulting from the Central Bank's $5,000 loan?