Bank of Arlington Loans Securities Member bank reserves Other assets Total FED and Monetary Policy Assets Liabilities $1,000,000 Transaction deposits $1,000,000 200,000 200,000 100,000 $1,500,000 Ownership claims Total 500,000 $1,500,000 4-11-23 Mariluz Vanwey 4-11-23 ? 1. Suppose that the Bank of Arlington is just meeting its reserve requirement. The reserve requirement must be 2. To be in a position to make loans, the Bank of Arlington must acquire some (required reserves/excess reserves). 3. If we assume that the reserve ratio is changed to 10 percent, the Bank of Arlington would have required reserves of 100,000 and excess reserves of 100,000. 4. With a 10 percent reserve ratio the Bank of Arlington is in a position to make new loans totaling 900,000 10% x 1000,000 = 100,000 1,000,000- 100,00=1900,000 5. Suppose the Bank of Arlington makes a loan of $100,000. The $100,000 is then spent so that it does not return to the Bank of Arlington but goes instead to the Bank of Cambridge. After this transaction, transactions deposits of the Bank of Arlington will be 1,000,000; its total reserves will be 200,000; its excess reserves will be 100,000; its required reserves will be 100,000. 6.. The Bank of Cambridge had zero excess reserves before receiving the $100,000 deposits. Because of the 10 percent reserve requirement, the required reserves for the bank rise by .10% x $100,000 = $10,000" $10,000 7. Excess reserves for the Bank of Cambridge after the $100,000 deposit are. 8. If it makes the full amount of loans possible under the reserve requirement, the Bank of Cambridge will cause M1 to increase by. 9. Altogether the Bank of Arlington and the Bank of Cambridge made loans and created deposits of 10 10. If this process were to continue to the maximum, the amount of loans made on the basis of the $100,000 initial excess reserves of the Bank of Arlington would be amount of deposits created would be. and the Bank of Arlington FED and Monetary Policy 4-11-23 Mariluz Vanway 4-11-23 As $1,000,000 Securities Member bork reserves Other Tronacion depos $1,000,000 200,000 200,000 100,000 Ownership cam T $1,500,000 Total 300,000 $1,500,000 1. Suppose that the Bank of Arlington is just meeting its reserve requirement. The reserve requirement must be. 2. To be in a position to make loans, the Bank of Arlington must acquire some (required reserves/excess reserves). 3. If we assume that the reserve ratio is changed to 10 percent, the Bank of Arlington would have required reserves of 100,000 and excess reserves of JCO. 4. With a 10 percent reserve ratio the Bank of Arlington is in a position to make new loans totaling 9,00,000. 10%x 1000,000 - 100,000 1000,000- 100,000 $900,000 5. Suppose the Bank of Arlington makes a loan of $100,000. The $100,000 is then spent so that it does not return to the Bank of Arlington but goes instead to the Bank of Cambridge. After this transaction, transactions deposits of the Bank of Arlington will be 100,000; its total reserves will be 200,000; Its excess reserves will be 100,000; its required reserves will be 100,000. 6. The Bank of Cambridge had zero excess reserves before receiving the $100,000 deposits. Because of the 10 percent reserve requirement, the required reserves for the bank rise by- 10% x $100,000 = $10,000" +10,000 7. Excess reserves for the Bank of Cambridge after the $100,000 deposit are. 8. If It makes the full amount of loans possible under the reserve requirement, the Bank of Cambridge will cause M1 to increase by. 9. Altogether the Bank of Arlington and the Bank of Cambridge made loans and created deposits of. 10 10. If this process were to continue to the maximum, the amount of loans made on the basis of the $100,000 initial excess reserves of the Bank of Arlington would be. amount of deposits created would be. , and the