Question
NEED ASAP The following table depicts the consolidated balance sheet of all banks in an economy's banking system.Each bank has fixed target reserve ratio of
NEED ASAP
The following table depicts the consolidated balance sheet of all banks in an economy's banking system.Each bank has fixed target reserve ratio of 10 percent.There is no currency drain, and banks do not hold excess reserves.Figures are in millions of dollars.
All Banks
Reserves$3,000
Deposits$30,000
Loans$26,000
Securities$1,000
(a)What is the amount of excess reserves initially?(5 points)
(b)Now the Bank of Canada purchases 60 million of securities in an open market operation from the banking system.Show how this transaction affects the banking system's balance sheet. (15 points)
(c)What is the level of excess reserves in the banking system now?(5 points)
(d)Given the situation in section (c) and if the banks respond by increasing loans, what will be the maximum increase in loans?Draw up a new balance sheet that reflects the banks' position after loans have been extended by its maximum amount and excess reserves are equal to zero. (15 points)
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