Question
The balance sheet below shows the effect of a new 3,400 deposit in Bank A. Assume that the commercial banks have established a 9 percent
The balance sheet below shows the effect of a new 3,400 deposit in Bank A. Assume that the commercial banks have established a 9 percent desired reserve and that no bank holds excess reserves.
BANK A | |
Assets | Liabilities |
Reserves 3,400 | Deposits 3,400 |
Loans 0 |
Assume that Bank A lends its excess reserves to Mr. Jones who spends the proceeds of the loan. Show Bank A's new balance sheet
BANK A | |
Assets | Liabilities |
Reserves | Deposits |
Loans |
The money Mr. Jones borrows is deposited in Bank B. Bank B lends its excess reserves to Mr. Smith. Show Bank B's balance sheet after the loan has been made out.
BANK B | |
Assets | Liabilities |
Reserves | Deposits |
Loans |
The money Mr. Smith borrows is deposited in Bank C. Bank C lends its excess reserves to Mr. Black. Show Bank C's balance sheet after the loan has been made out.
BANK C | |
Assets | Liabilities |
Reserves | Deposits |
Loans |
The money Mr. Black borrows is deposited in Bank D. Bank D lends its excess reserves to Mr. Green. Show Bank D's balance sheet after the loan has been made out.
BANK D | |
Assets | Liabilities |
Reserves | Deposits |
Loans |
If the above process continues to completion, the following totals will exist for the banking system:
Part 7: Deposits
Part 8: Reserves Part 9: Loans
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