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Chapter 15: Q3. (page 319)

Third National Bank has reserves of \(20,000 and checkable deposits of \)100,000. The reserve ratio is 20 percent. Households deposit $5,000 in currency into the bank, and the bank adds that currency to its reserves. What amount of excess reserves does the bank now have?

Short Answer

Expert verified

The excess reserves of Third National Bank would be $4000.

Step by step solution

01

Calculating excess reserves

Excess Reserves= Actual Reserves-Required Reserves

Therefore, calculate the required reserves and the actual reserves to find the excess reserves. The required reserve is a percentage of the checkable deposits. Therefore, checkable deposits will be equal to the initial checkable deposits plus new checkable deposits.

100000 + 5000 = 105000

The required ratio will be:

105000脳20100=21000

The actual reserves will be the new deposits added to the original reserves. Hence:

20000 + 5000 = 25000

The excess reserves will be = 25000-21000 =$4000.

Therefore, excess reserves will be $4000.

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Most popular questions from this chapter

Suppose the following simplified consolidated balance sheet is for the entire commercial banking system and that all figures are in billions of dollars. The reserve ratio is 25 percent.

a. What is the amount of excess reserves in this commercial banking system? What is the maximum amount the banking system might lend? Show in columns 1 and 1鈥� how the consolidated balance sheet would look after this amount has been loaned. What is the value of the monetary multiplier?

b. Answer the questions in part a assuming the reserve ratio is 20 percent. What is the resulting difference in the amount that the commercial banking system can loan?

A commercial bank has \(100 million in checkable-deposit liabilities and \)12 million in actual reserves. The required reserve ratio is 10 percent. How big are the bank鈥檚 excess reserves?

  1. \(100 million

  2. \)88 million

  3. \(12 million

  4. \)2 million

A single commercial bank in a multibank banking system can lend only an amount equal to its initial pre-loan ______________.

  1. total reserves

  2. excess reserves

  3. total deposits

  4. excess deposits

If the required reserve ratio is 10 percent, what is the monetary multiplier? If the monetary multiplier is 4, what is the required reserve ratio?

Suppose again that Third National Bank has reserves of \(20,000 and checkable deposits of \)100,000. The reserve ratio is 20 percent. The bank now sells \(5,000 in securities to the Federal Reserve Bank in its district, receiving a \)5,000 increase in reserves in return. What amount of excess reserves does the bank now have? By what amount does your answer differ (yes, it does!) from the answer to problem 3?
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