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

a. Calculate the level of excess reserves for Lafayette Bank.
b. How much can Lafayette Bank safely lend?
c. Show the changes in Lafayette Bank's balance sheet after the loan (in checking account form) has been made.
d. Show the entire balance sheet after the loan has been spent and cleared.

Transcribed Image Text:

Lafayette Bank Assets Liabilities & Equity 60,000 Deposits Cash in the vault Deposits at the central bank 100,000 Borrowing from the central bank 70,000 Loans Securities Other 500,000 800,000 Borrowing from other banks 100,000 Other liabilities 30,000 Stockholders' equity 400,000 100,000 20,000