A simplified balance sheet for the local bank is shown below. The required reserve ratio is 20%.

All figures are in thousands.

Reserves $1000

Checkable deposits $4000

Securities 1000

Stock shares 1000

Loans 2500

Property 500

How much is this bank currently required to hold in reserve?

How much does the bank currently hold in excess reserves?

Suppose the bank lends out the full amount of its excess reserves. Modify the balance sheet to reflect the creation of the loan. By how much has the money supply increased as a result of the loan?

Suppose the borrower of the new loan writes a check for the amount of the loan to purchase new equipment for her business. The equipment seller then deposits the check in an out-of-town bank.

Show the new balance sheet for this local bank once the check has cleared.

Once the check has cleared, does the local bank have any excess reserves?

Answer rating: 100% (QA)

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