Question: The question: Shown below is a simplified balance sheet for Sharpeland Bank. Assets Liabilities Required Reserves $40,000 Checkable Deposits $200,000 Excess Reserves $25,000 Government Bonds

The question:

Shown below is a simplified balance sheet for Sharpeland Bank.

Assets Liabilities
Required Reserves $40,000 Checkable Deposits $200,000
Excess Reserves $25,000
Government Bonds $100,000
Loans $30,000
Building & Fixtures $15,000 Owner's Equity $10,000

  1. Calculate the required reserve ratio. (Show your work)
  2. Assume that Pam wants to borrow money to pay for a new car from Sharpeland Bank.

a. What is the maximum amount that Sharpeland Bank can loan out if it wants to keep all of its bonds?

b. What is the maximum amount that the banking system can create given the balance sheet above?

3. Assume instead that Michael withdraws $10,000 in cash from his checking account at Sharpeland.

a. By how much will Sharpeland Bank's reserves change based on Michael's withdrawal? (Be specific.)

b. What is the immediate effect of the withdrawal on the M1 measure of the money supply? Explain.

c. As a result of the withdrawal, what is the new value of excess reserves for Sharpeland Bank based on the reserve requirement from part (a)?

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