The balance sheet below shows the effect of a new 3,400 deposit in Bank A. Assume that the commercial banks have established a 17 percent desired reserve and that no bank holds excess reserves.

BANK A
Assets	Liabilities
Reserves 3,400	Deposits 3,400
Loans 0

Assume that Bank A lends its excess reserves to Mr. Jones who spends the proceeds of the loan. Show Bank A's new balance sheet

BANK A
Assets	Liabilities
Reserves	Deposits
Loans

The money Mr. Jones borrows is deposited in Bank B. Bank B lends its excess reserves to Mr. Smith. Show Bank B's balance sheet after the loan has been made out.

BANK B
Assets	Liabilities
Reserves	Deposits
Loans

The money Mr. Smith borrows is deposited in Bank C. Bank C lends its excess reserves to Mr. Black. Show Bank C's balance sheet after the loan has been made out.

BANK C
Assets	Liabilities
Reserves	Deposits
Loans

The money Mr. Black borrows is deposited in Bank D. Bank D lends its excess reserves to Mr. Green. Show Bank D's balance sheet after the loan has been made out.

BANK D
Assets	Liabilities
Reserves	Deposits
Loans

If the above process continues to completion, the following totals will exist for the banking system:

Part 7: Deposits

Part 8: Reserves
Part 9: Loans

Answer rating: 100% (QA)

As new balance sheet By keeping 17 of 3400 as reserve the bank will lend the rest Reserve... View the full answer