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Question 22 - Question 24: Alpha has a very simple banking system, in which there is only one chartered bank (The Frist Bank). The central bank of Alpha imposes a minimum required reserve ratio of 5%. Households in Alpha hold a fixed amount of $1,200 in the form cash for their daily transactions and will deposit any excess amount into their bank accounts. The initial balance sheet of the First Bank is as follows: Assets Liabilities & Equity Loans $8,800 Demand deposits $9,000 Bank reserves $500 Equity $300 Note: Unless otherwise stated, the excess reserves held by the First Bank will remain fixed at the current level as shown in the initial balance sheet and will lend out any surplus of reserves beyond this. Question 22 Suppose the government of Alpha transfers $75 of its deposits from the First Bank to the central bank of Alpha. When the banking system is back to equilibrium, determine whether each of the following statements is true or false. TRUE The amount of reserves held by the First Bank falls by $75. FALSE The level of loans made by the First Bank falls by $1,500. Question 23 Return to the initial situation. Recently, there are privacy and security concerns over the use of more advanced payment methods such as phone payments; the public changes their cash holdings by $120. Complete the balance sheet of the First Bank when the banking system is back to equilibrium. Assets Liabilities & Equity Loans $6,520 Demand deposits $6,600 Bank reserves $380 Equity $300