Problem 2

a) What happens to reserves at the First National Bank if one person withdraws $1,100 of cash and another person deposits $200 of cash? Use T-accounts to explain your answer.

b) Using the T-accounts of the First National Bank and the Second National Bank given in this chapter, describe what happens when you write a check for $50 on your account at the First National Bank to pay your friend, who in turn deposits the check in his account at the Second National Bank.

c) NewBank started its first day of operations with $155 million in capital. A total of $92 million in checkable deposits is received. The bank makes a $28 million commercial loan and lends another $23 million in mortgage loans. If required reserves are 5.4%, what does the bank balance sheet look like?