2. Why Banks Hold Excess Reserves The following is a simplied balance sheet for Mi Tierra Bank in the United States. Mi Tierra Bank Required reserves $10,000 Demand deposits $100.000 Excess reserves $5,000 Loans $85,000 Owner's equity $0 (a) What is the reserve requirement in this economy? Give your calculations. (b) What is the size of the actual reserves of Mi Tierra Bank? Make the common conclusion, what is the relation between deposits, reserves and loans. (c) In this initial situation what can be a maximum change of the money supply? Give your calculations and explain your answer. (a) Assume that Luis withdraws $5,000 in cash from his checking account at Mi Tierra Bank. (i) By how much will Mi Tierra Bank's reserves change based on Luis' withdrawal? (in What is the initial effect of the Withdrawal on the M1 measure of money supply? Explain. (iii) As a result of the withdrawal, what is the new value of excess reserves on the balance sheet of Mi Tierra Bank based on the reserve requirement from part (a)? (iv) What is the maximum change in the amount of money supply as a result of this withdrawal? (e) Assume that the next day John withdraws from Mi Tierra Bank an amount that exceeds the bank's excess reserves. Assuming that no loans are called in, how can Mi Tierra Bank cover its required reserves