Author Question: Suppose a bank has the following balance sheet: Assets Liabilities Reserves 14,000 Deposits ... (Read 106 times)

nenivikky · **on:** Jun 29, 2018

Suppose a bank has the following balance sheet:

Assets Liabilities
Reserves 14,000 Deposits 100,000
Loans 90,000 Net Worth 4,000

If the required reserve ratio is 10 percent, how much excess reserves does the bank have? What is the maximum amount that the bank can expand its loans?

Question 2

At each of the three points in the following graph, indicate whether planned aggregate expenditure is greater than, equal to, or less than GDP?

What will be an ideal response?

jordangronback · **Reply #1 on:** Jun 29, 2018

Answer to Question 1

If the required reserve ratio is 10 percent, then a bank must hold 10 percent of its deposits as reserves. Therefore required reserves equal 0.1 100,000 = 10,000. This bank has 4,000 in excess reserves (14,000 - 10,000 or 4,000 ). This is the maximum that the bank can loan out.

Answer to Question 2

At point J, planned aggregate expenditure is greater than GDP.
At point K, planned aggregate expenditure is equal to GDP.
At point L, planned aggregate expenditure is less than GDP.