Modified Money Creation and the Money Multiplier Portfolio

Please view the following bank balance sheet and then answer the questions that follow

Bank of Mesquite

Liabilities

Assets

Required reserves $10,000

Demand Deposits $50,000

Excess reserves $15,000

Loans $20,000

Bonds $5,000

Buildings and Fixtures $10,000

Owner's Equity $10,000

1. Calculate the Required Reserve Ratio (remember you must show your work)

1. How much money does this bank have in excess reserves?

1. If Matthew wants to take out a loan from the Bank of Mesquite, what is the maximum amount the bank can currently lend him without selling any of its bonds?

1. Based on the balance sheet above, what is the maximum amount that the banking system can create? (you will need to use the multiplier to determine this answer)

1. If Michael withdraws $15,000 from the bank of Mesquite, how much will be left in required reserves? How much will be left in excess reserves?

1. What is the immediate effect of the withdrawal on the M1 measure of the money supply? Explain.