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Assume the public in Nealland does not hold any cash . All commercial banks, however, hold 5% of their checking deposits aa excess reserves ,
Assume the public in Nealland does not hold any cash. All commercial banks, however, hold 5% of their checking deposits aa excess reserves, regardless of the interest rate.
a. Consider the balance sheet of one of several identical banks:
| ASSETS | LIABILITIES & NET WORTH |
| Reserves $ 400 | Checking Deposits $2,000 |
| Loans $1,600 | Net Worth $ 0 |
What is the required reserve ratio?
b. If the total money stock (supply) is $100,000, find the total amount of cash reserves in the vaults of all banks in the economy.
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