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Questions and Answers
If a bank's required reserves are $740 and the reserve requirement is 10% of deposits, what is the total amount of deposits held by the bank?
Given the banking system's balance sheet, if the required reserve ratio is 15%, what is the value of excess reserves?
If Jane deposits $600 at Local Bank and the reserve requirement is 10%, what is the value of required reserves after her deposit?
If the required reserve ratio is 12.5%, what is the value of the money multiplier?
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If total deposits in the banking system are $5800, total reserves are $780, and the reserve requirement is 12%, what is the value of $M_1$?
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If the banking system holds $3,000 in securities and $M_1$ is $6,400, what is the total value of loans held by the banking system?
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Given the information provided, if the reserve requirement is 12% and excess reserves are $70, what is the total new lending capacity of the banking system?
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If the required reserve ratio is 15%, Local Bank makes a $300 loan to Harry, and the loan proceeds are deposited into Harry's account at Local Bank, what will be the value of Local Bank's required reserves after the loan?
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Suppose a bank’s balance sheet looks as follows, and banks are required to hold reserves equal to 10 percent of deposits. Assets Liabilities Reserves $ 740 Deposits $7,000 Loans 6,260 (a) How much ______ reserves does the bank hold?
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Suppose the banking system’s balance sheet looks like this: Assets Liabilities Reserves Deposits $840 Required $ 126 ______ 70 Loans 644 Total $840 Total $840 (a) What is the required reserve ratio?
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Assume Jane deposits $600 at Local Bank, and the reserve requirement is 10%. a.Draw the balance sheet of Local Bank, assuming this is the only deposit. Include required and ______ reserves.
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What is the value of the money multiplier when the required reserve ratio is (a) 12.5 percent? (b) 15 ______?
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Suppose the following: Total deposits in banking system $5800 Total reserves 780 Reserve requirement 12% M1 6400 Securities 3000 (a) How much cash is in ______?
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Suppose the following: Total deposits in banking system $5800 Total reserves 780 Reserve requirement 12% M1 6400 Securities ______ (a) How much cash is in circulation?
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Suppose the following: Total deposits in banking system $5800 Total reserves 780 Reserve requirement 12% M1 6400 ______ 3000 (b) How much does the banking system hold in loans?
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Suppose the following: Total deposits in banking system $5800 Total reserves 780 Reserve requirement 12% M1 6400 ______ 3000 (c) What is the total new lending capacity of the banking system?
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Study Notes
Bank Balance Sheet
- A bank's balance sheet consists of assets (reserves, loans) and liabilities (deposits).
- Reserves are required to be held equal to a percentage of deposits, known as the reserve requirement.
Reserve Requirements
- The reserve requirement is 10% in the given examples, meaning banks must hold 10% of deposits as reserves.
- Excess reserves are the amount of reserves held above the required amount.
Bank Lending
- A bank can lend an amount equal to its excess reserves.
- The bank's ability to lend is limited by the reserve requirement.
Banking System
- The banking system's balance sheet combines the assets and liabilities of all banks.
- The required reserve ratio is the percentage of deposits that banks must hold as reserves.
- The money supply can be expanded by the amount of excess reserves in the banking system.
Money Multiplier
- The money multiplier is a value that determines the amount of money supply expansion possible.
- The money multiplier is inversely related to the required reserve ratio.
Specific Examples
- A bank with $740 in reserves and $7,000 in deposits has excess reserves of $240 and can lend $240.
- A banking system with $840 in reserves and $840 in deposits has a required reserve ratio of 15% and can expand the money supply by $710.
- A bank with a single deposit of $600 and a 10% reserve requirement has required reserves of $60 and excess reserves of $40.
- The money multiplier is 8 when the required reserve ratio is 12.5% and 6.67 when the required reserve ratio is 15%.
Banking System Analysis
- The total deposits in the banking system are $5,800.
- The total reserves are $780.
- The reserve requirement is 12%.
- M1 is $6,400.
- Securities are $3,000.
- The amount of cash in circulation is $280.
- The banking system holds $4,020 in loans.
- The total new lending capacity of the banking system is $1,320.
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Description
Test your knowledge on bank balance sheets, reserves, and lending capacity with this problem set. Calculate excess reserves and how much a bank can lend based on a given balance sheet.
