Imagine a country in which there are just three banks, A, B, and C, whose balance sheets are shown below:

BANK A
Assets	$	Capital & Liabilities	$
Notes and coins (Cb)	30,000	Shareholders’ funds (Sf)	100,000
Deposit at the central bank (Db)	50,000	Customer deposit (Dp)	30,000
Loan to the public (Lp)	50,000		-
	130,000		130,000
BANK B
Assets	$	Capital & Liabilities	$
Notes and coins (Cb)	30,000	Shareholders’ funds (Sf)	100,000
Deposit at the central bank (Db)	40,000	Customer deposit (Dp)	50,000
Loan to the public (Lp)	80,000		-
	150,000		150,000
BANK C
Assets	$	Capital & Liabilities	$
Notes and coins (Cb)	30,000	Shareholders’ funds (Sf)	100,000
Deposit at the central bank (Db)	60,000	Customer deposit (Dp)	40,000
Loan to the public (Lp)	50,000		-
	140,000		140,000

Assume that banks' customers are holding notes and coins Cp of $150,000.

Question 1. Calculate the size of the money stock.

Question 2.  Calculate the reserve ratio for Bank B.

Question 3.  Calculate the reserve ratio for the country.

 

Suppose now that bank A increases its advances (Lp) by $70,100 and its customers use this lending to pay $50,100 to clients of bank C and $20,000 to clients of bank B.

Question 4.  Show the new balance sheet position for each bank.

Question 5.  Calculate the reserve ratio for bank C.

Question 6.  Calculate the size of the money stock.

Question 7.  Calculate the reserve ratio for bank A.

 

Suppose now that bank C also increase its lending by $26,000 and that its customers pay $13,500 each to clients of A and $12,500 to clients of bank B.

 Question 8. Show the balance sheet position for each bank.

Question 9.  By how much has the money stock increased?

Question 10.  Calculate the aggregate reserve ratio.