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9-12 Suppose that Continental Bank has the simplied balance sheet shown below and that the reserve ratio is 20 percent: L05 Assets Liabilities and net
9-12 Suppose that Continental Bank has the simplied balance sheet shown below and that the reserve ratio is 20 percent: L05 Assets Liabilities and net worth (1) (2) (1) (2) Reserves $22,000 Checkable deposits $100,000 Securities 38,000 Loans 40,000 a. What is the maximum amount of new loans that this bank can make? Show in column 1 how the bank's balance sheet will appear after the bank has lent this additional amount. b. By how much has the supply of money changed? Explain. c. How will the bank's balance sheet appear after checks drawn for the entire amount of the new loans have been cleared against this bank? Show this new balance sheet in column 2. (a) $100,000 x 20 percent = $2,000. Column 1 of Assets (top to bottom): $22,000; $38,000; $42,000. Column 1 0f Liabilities: $102,000. 03) $2,000. The bank has lent out its excess reserves, creating $2,000 of new demand-deposit money. (c) Column 2 of Assets (top to bottom): $20,000; $38,000; $42,000. Column 2 of Liabilities; $100,000. 9-13 Suppose the simplified consolidated balance sheet shown below is for the entire commercial banking system. All figures are in billions. The reserve ratio is 25 percent. L05 Assets Liabilities and Net Worth (1) (2) Reserves $ 52 _ Checkable deposits $200 _ Securities 48 _ Loans 100 a. What amount of excess reserves does the commercial banking system have? What is the maximum amount the banking system might lend? Show in column 1 how the consolidated balance sheet would look after this amount has been lent. What is the monetary multiplier? b. Answer the questions in part a assuming the reserve ratio is 20 percent. Explain the resulting difference in the lending ability of the commercial banking system
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