In the following bank balance sheet, amounts are in millions of dollars. The required reserve ratio is

Question:

In the following bank amounts are in millions of dollars. The required reserve ratio is 3% on the first $30 million of checkable deposits and 12% on any checkable deposits over $30 million.

Liabilities Assets $18.9 Checkable deposits 150.0 Net worth Reserves $180.0 Loans 20.0 Securities 31.1 $200.0 $200.0

a. Calculate the bank€™s excess reserves.
b. Suppose that the bank sells $5 million in securities to an investor. Show the bank€™s balance sheet after this transaction. Now what are the bank€™s excess reserves?
c. Suppose that the bank loans its excess reserves in part (b) to a local business. Show the bank€™s balance sheet after the loan has been made but before the business has spent the proceeds of the loan. Now what are the bank€™s excess reserves?
d. Suppose that the business spends the amount of the loan by writing a check. Revise the bank€™s balance sheet and calculate its excess reserves after the check has cleared.

Balance Sheet
Balance sheet is a statement of the financial position of a business that list all the assets, liabilities, and owner’s equity and shareholder’s equity at a particular point of time. A balance sheet is also called as a “statement of financial...