Suppose the required reserve ratio for the banking system is 25%. Answer the following questions based on the balance sheet of Lafayette Bank:

Lafayette Bank

Assets

Cash in the vault

Deposits at the central bank Loans

Securities

Other

Liabilities & Equity

60,000 Deposits

100,000 Borrowing from the central bank 800,000 Borrowing from other banks 100,000 Other liabilities

30,000Stockholders' equity

500,000 70,000 400,000 100,000 20,000

a.

Calculate the level of excess reserves for Lafayette Bank.

1. How much can Lafayette Bank safely lend?
2. Show thechangesin Lafayette Bank's balance sheet after the loan (in
3. checking account form) has been made.

1

Assets

Deposits at the central bank

Securities

Other

Liabilities & Equity

Lafayette Bank

Cash in the vault

60,000

Deposits

500,000

100,000 Borrowing from the central bank

100,000 Other liabilities 30,000Stockholders' equity

70,000

100,000 20,000

Loans

800,000

Borrowing from other banks

400,000

d. Show theentirebalance sheet after the loan has been spent and cleared. Lafayette Bank

Securities Other

100,000 30,000

Other liabilitiesStockholders' equity

100,000 20,000

Assets

Liabilities & Equity

Cash in the vault

60,000

Deposits

500,000 500,000

Deposits at the central bank

100,000

Borrowing from the central bank

70,000

Loans

800,000

Borrowing from other banks

400,000