Question 4 The banking system for the country of OZ is comprised of two banks, A and B. Their balance sheets are given below. Bank A Assets Liabilities Loans 200 Deposits 300 Reserves 150 Equity 50 Bank B Assets Liabilities Loans 500 Deposits 450 Reserves 50 Equity 100 (a) If the stock of currency in OZ is 800, what is the value of the money supply? (M = 1550) (b) Calculate the leverage ratio for Bank A and Bank B. (Bank A = 200/50 = 4. Bank B = 500/ 100 = 5)- (c) Other things equal, which bank is the most susceptible to a liquidity crisis? (Bank B. It has a lower reserve-deposit ratio than Bank A: 0.11 vs 0.5) (d) Suppose Bank A makes an additional loan of so to a Ms Jones. What is the immediate effect of this on the Bank A's balance sheet? (Loans = 250 and Deposits = 350) (e) Ms Jones uses her all her loan to buy a used car from Mr Smith, who has account with Bank B. What is the effect of this transaction on the balance sheets of banks A and B? (Bank A: Deposits fall from 350 to go0. Reserves fall from 150 to 100. Bank B: Deposits increase from 450 to 500 and reserves increase from 50 to 100). (f) What is the effect of the loan by Bank A on the money stock in OZ? (Increase in M from 1550 to 1600.) (g) What has happened to the reserve-deposit ratio for Bank A and for Bank B? (Bank A's reserve-deposit ratio has fallen from 0.5 to 0.33. Bank B's reserve-deposit ratio has increased from o.11 to o.2)