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Answers- Commercial Banking Balance SheetAnswer the next question based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All figures are in millions of dollars.AssetsLiabilities?????????????????????????Reserves$200Deposits$600Securities500Capital Stock700Loans100Property500(a) What is the amount of excess reserves in this commercial banking system?reserve ratio=required reservescheckable depositsexcess reserves=actual reserves-required reservesRequired reserves are $600 million x .30 = $180 million. Actual reserves are $200 million, so excess reserves are $20 million.(b) What is the maximum amount that the money supply can be expanded?maximum checkable deposit creation=excess reserves ×multiplierThe monetary multiplier is 1/.3 or 3.33. Maximum expansion of the money supply is $20 million x 3.33, or 66.67 million.(c) If the reserve ratio fell to 25 percent, what is now the maximum amount that the money supply can be expanded?reserve ratio=required reservescheckable depositsmaximum checkable deposit creation=excess reserves ×multiplierIf the reserve ratio was 25%, then excess reserves would be $50 million [$200 million – (.25 x $600 million)]. The monetary multiplier would be 1/.25 or 4, so the maximum expansion of the money supply is $200 million [4 x $50 million]. [text: E pp. 274-277; E pp. 274-277]Answer the following questions using the below simplified balance sheet for Ballin’ like a BOSS National bank. ASSETSLIABILITIESRequired Reserves $2,000Demand Deposits $20,000Excess Reserves $10,000Capital Stock $10,000Loans $5,000Securities $3,000Buildings $10,000What is the required reserve ratio? reserve ratio=required reservescheckable deposits2000/20000=10%If Ballin’ like a BOSS National Bank loans out its remaining excess reserves; what is the maximum amount the money supply can grow? monetary multiplier=1reserve ratiomaximum checkable deposit creation=excess reserves ×multiplier1/.10= 10 for the multiplier $10,000 x 10= $100,000 max money growthIf the bank sells bonds in the amount of $2,000 to the FED; what would be the change in value for the following? Required Reserves- do not change because the checkable deposits (demand deposits) don’t changeExcess Reserves- increase by $2,000 as the bonds are sold for cashSecurities- decrease from $3000 to $1000 because we sold $2,000 of them (securities and bonds are synonym-nym-nyms)What is the maximum amount the money supply could change based on this bond purchase by the FED? maximum checkable deposit creation=excess reserves ×multiplier$2,000 x 10= $20,000Answer the following questions using the below T-account for Macro-Skrilla Bank. ASSETSLIABILITIESRequired Reserves $10,000Checkable Deposits $50,000Excess Reserves $20,000Owner’s Equity $40,000Loans $15,000Securities $5,000Property $40,000What is the required reserve ratio? reserve ratio=required reservescheckable deposits$10,000/$50,000= 20%Based on the required reserve ratio, if the bank loans out all its current excess reserves, what is the maximum amount the money supply can grow? monetary multiplier=1reserve ratiomaximum checkable deposit creation=excess reserves ×multiplier1/.2= 5 as a multiplier$20,000 x 5= $100,000 max creationCustomer Danny Ca$h deposits $10,000 of currency into the bank. What is the initial change in the M1 money supply?trick question the AP loves, there is no change in M1, currency is part of M1 and so are Checkable Deposits so the M1 does not change, we just put some cash in our bank account and in either form it is a part of M1What is the new value of excess reserves? reserve ratio=required reservescheckable deposits.2= x/$10,000 x=$2,000 in required reservesexcess reserves=actual reserves-required reserves$10,000-$2,000=$8,000 change in excess reserves so new value is $8,000 + 20,000= $28,000How much can the money supply change based off of Danny Ca$h’s deposit? maximum checkable deposit creation=excess reserves ×multiplier$28,000 x 5= $140,000 in new money creationUse original balance sheet numbers for the following scenario: The FED lowers the discount rate to 0% enticing Macro-Skrilla Bank to borrow $50,000 from the FED. What is the new dollar value of excess reserves? It goes up by $50,000 to $70,000, only Checkable Deposits have a reserve requirement and those do not change in this scenario. What is the maximum the money supply can change based off of the new excess reserves amount? maximum checkable deposit creation=excess reserves ×multiplierthe new total amount is $70,000 so if the correct answer would be $70,000 x 5= $350,000 if they asked for just the new reserves to be used you would do $50,000 x 5= $250,000Do any changes need to be made to the liabilities side of the balance sheet? Yes, both sides must balance so you would enter a new category called Loans from the Fed on the liabilities side of $50,000 while adding $50,000 to the excess reserves on the assets side (making it $70,000 total) ................
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