ECN 211 HW 6, 320, 3 The balance sheet for Bank A below shows the effect of a new $50,000 deposit by Mr. Thompson. The $50,000 comes from Mr. Thompson's sale, through his broker, of government bonds to the Federal Reserve. Assume: 1) the Fed has established a 20% (-20) reserve requirement on checkable deposits at all banks; 2) all deposits are checkable deposits; 3) that no bank holds excess reserves; and 4) there are no cash leakages. Note: Calculate all answers using 2 decimal places. 18. Based on the reserve requirement identified above, divide Bank A's total reserves into required reserves and excess reserves. Bank A Assets Liabilities ........... +$50,000 Checkable deposits................... + $50,000 Reserves: .......... Required: Excess: Total: ....... ... + $50,000 Total: ....... .......... + $50,000 19. Assume that Bank A lends its excess reserves to Mr. Jones, who uses the loan for new inventory for his hardware store. Show Bank A's new balance sheet below: Bank A Assets Liabilities Reserves (required): Checkable deposits................... +$50,000 Loans: Total: ............ +$50,000 Total: ......... ............ +$50,000 20. The money borrowed by Jones is deposited by the hardware wholesaler into Bank B. Assume that the bank uses its excess reserves to buy government securities. Show Bank B's balance sheet. Bank B Assets Liabilities Total: Total: 21. The proceeds from the government securities are deposited in Bank C. Bank C lends its excess reserves to Mr. Smith, who uses the money to make a down payment on the purchase new automobiles for his auto-rental company. Show Bank C's balance sheet: Bank C Assets Liabilities Total: Total: ECN 211 HW 6, 320, 4 22. The auto dealer deposits the down payment in Bank D, which uses the excess reserves to make a loan to Mr. Wilson for the purchase of new office furniture. Show Bank D's balance sheet: Bank D Assets Liabilities Total: Total: 23. Assuming that the above money creation process continues to completion, when the process is completed the following totals will exist for the banking system: 1) total increase in checkable deposits = $. 2) total increase in reserves = $_ 3) total increase in other assets = $ 24. Following the Fed's creation of an initial checkable deposit of $50,000 which is an increase in the of monetary base, the private banking system will have created $ additional new money. 25. The ratio of the new checkable deposits to the initial deposit is known as the , and in this example has a value of 26. Suppose each of the banks holds an extra 1% as excess reserves; then the total checkable deposits will be $ _- (Use 3 decimal places in the new deposit multiplier.) 27. Suppose some of the people hold cash out of the banking system. The total amount of checkable deposits will be (smaller/larger) 28. In each case below, show the amount of checkable deposits that will exist in the banking system for the initial deposit and the reserve requirement shown. Assume that there are no excess reserves and no cash leakages from the banking system. Use 3 decimal places in multiplier. Initial deposit Reserve requirement Deposit multiplier Checkable deposits 50,000 0.18 50,000 0.22 65,000 0.20 45,000 0.20