Fin 100

Homework Chapter 4 E2 & Chapter 5 Pl, P6

E2: As the executive of a bank or thrift institution you are faced with an intense seasonal

demand for loans. Assuming that you loanable funds are inadequate to take care of the

demand, how might your Reserve Bank help you with this problem? When giving

someone a loan as the lender I would acquire interest in return on top of the loan being

paid back.

P1: Assume that Banc One receives a primary deposit of $1 million. The bank must keep

reserves of 20 percent against its deposits. Prepare a simple balance sheet of assets and

liabilities for Banc One immediately after the deposit is received.

Assets

Liabilities

Reserves $200 thousand

Deposit $1 million

Funds

$800 thousand

$1 million

$1 million

P6: Assume a financial system has a monetary base of $25 million. The required reserves

ratio is 10 percent, and there are no leakages in the system.

A.

What is the size of the money multiplier? 1/.10% = 10%

B.

What will be the systems money supply? $25 million x 10= $250 million