The purpose of this exercise is to show that a

single bank

in a

fractional-reserve banking

system

creates

money

by

making a loan

or

monetizing

a promissory note.

Bank of America's (BOA) balance sheet indicates:

Assets

Liabilities

Reserves

$30,000

Checkable deposits

$100,000

Loans outstanding

$60,000

Treasury securities

$10,000

MUST SHOW FORMULA AND CACULATION FOR 1a AND 1b

Assume the Fed sets the

reserve requirement

at 20%.

a.

BOA must maintain

required reserves

of $_______________.

Formula (write out formula #1a): _________________________

b.

BOA has

excess reserves

of $_______________.

Formula (write out formula #1b): _________________________

c.

BOA can make loans or create money by a maximum of $_______________.