1.2.5 You are given this account for a bank:

The required reserve ratio is 10 percent.
Fed to control the money supply precisely. Explain why this is true.
2.5 You are given this account for a bank:

a. How much is the bank required to hold as reserves given its deposits of $8,000?

b. How much are its excess reserves?

c. By how much can the bank increase its loans?

d. Suppose a depositor comes to the bank and withdraws $500 in cash. Show the bank’s new balance sheet, assuming the bank obtains the cash by drawing down its reserves. Does the bank now hold excess reserves? Is it meeting the required reserve ratio? If not, what can it do?

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Reserves Assets Liabilities $1,200 $8,000 Deposits Loans 6,800