Assume that the Fed buys a $1,000 government security from Joan, who deposits the $1,000 in her checking account at the Last National Bank. (Assume that Last National's T-account balances start at zero before the deposit.) The Last National Bank puts $50 of this money in vault cash, and the remainder is deposited at the Fed. Assuming a required reserve ratio of 10% for all banks, answer questions #8 through #41. Fill in the blanks in the balance sheet below for the Last National Bank a. Balance Sheet for Last National Bank Assets Liabilities 8. $ Legal Reserves 9. $ Demand Deposits Vault cash 10. $ Joan 11. $ Deposits at Fed 12. $. Required Reserves 13. $ Excess Reserves 14. $ $0 Loans aking account b. Assume that Ross goes to the Last National Bank and gets a loan of $900 in the form of a new checking account (demand deposit). What would this do to the values of the bank's assets and liabilities? Fill in the blanks below with your answers. Balance Sheet for Last National Bank Assets Liabilities Legal Reserves 15. $ Demand Deposits 16. $ Vault cash 17. $ Joan 18. $ 19. $ Ross 20. $ Deposits at Fed Required Reserves 21. $ Excess Reserves 22. $ Loans 23. $. a. O b. 10 C. 50 d. 90 e. 100 a. 190 b. 200 c. 250 d. 300 e. 350 ANSWERS a. 400 a. 710 b. 450 b. 750 c. 500 c. 800 d. 600 d. 810 e. 700 e. 850 a. 900 b. 910 c. 950 d. 1,000 e. 1,900 a. 4,000 b. 6,000 C. 8,000 d. 9,000 e. 10,000 c. Now assume that Ross goes to his plastic surgeon, Dr. Skinflint, and spends the entire $900 getting a complete face lift. He writes a check to Dr. Skinflint. Dr. Skinflint deposits the $900 in her checking account at Suneast National Bank. (Assume Supeast's T-account balances start at zero before the deposit.) The check clears. Suneast keeps $850 as a deposit at the Fed, and puts the remaining $50 into vault cash. What would this do to the values of both bank's assets and liabilities? Fill in the blanks below with your answers, Balance Sheet for Last National Bank Assets Liabilities Legal Reserves 24. $ Demand Deposits 25. $ Vault cash 26. $ Joan 27. $ Ross 29. $ Deposits at Fed 28. $ Required Reserves 30.$_ Excess Reserves 31. $ Loans 32. $ Balance Sheet for Supeast National Bank Assets Liabilities Legal Reserves 33. $ Demand Deposits 34. $ Dr. Skinflint 36. $ Vault cash 35. $ Deposits at Fed 37. $ Required Reserves 38. $ Excess Reserves 39. $ Loans $ $0 d. As the banking system continues to make loans M1 will increase. How much will the total increase in M1 caused by this open market operation eventually be? Answer = 40. $ How much of this eventual total increase in M1 will be due to loans? Answer = 41. $ a. 0 b. 10 c. 50 d. 90 e. 100 a. 190 b. 200 c. 250 d. 300 e. 350 ANSWERS a. 400 a. 710 b. 450 b. 750 c. 500 C. 800 d. 600 d. 810 e. 700 e. 850 a 900 b. 910 c. 950 d. 1,000 e. 1,900 a. 4,000 b. 6,000 C. 8,000 d. 9,000 e. 10,000
