Economics For Today
10th Edition
ISBN: 9781337613040
Author: Tucker
Publisher: Cengage Learning
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Chapter 25, Problem 19SQ
To determine
The size of loan extension.
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A chartered bank has $1 million in deposits and $40,000 in desired reserves. Its excess reserves are initially zero.
a. The reserve ratio in the banking system is .......%.
b. If a further $100,000 is deposited in this bank then the bank's desired reserves increase by $.......while the bank's excess reserves increase by $........
If a bank has $100,000 of checkable deposits, a required reserve ratio of 20 percent, and it holds $40,000 in reserves, then the maximum deposit outflow it can sustain without altering its balance sheet is
A) $30,000.
B) $25,000.
C) $20,000.
D) $10,000.
Which of the following activities will affect a bank’s required reserves? why?
a. The local Girl Scout troop collects coins and currency to buy a new camping stove. The troop deposits $250 in coins and opens a small-time deposit.
b. You decide to move $200 from your MMDA to your NOW account.
c. You sell your car to the teller at your bank for $5,000. The teller pays with a check drawn on the bank, and you deposit the check immediately into your checking account at the bank
Chapter 25 Solutions
Economics For Today
Ch. 25.3 - Prob. 1YTECh. 25 - Prob. 1SQPCh. 25 - Prob. 2SQPCh. 25 - Prob. 3SQPCh. 25 - Prob. 4SQPCh. 25 - Prob. 5SQPCh. 25 - Prob. 6SQPCh. 25 - Prob. 7SQPCh. 25 - Prob. 8SQPCh. 25 - Prob. 9SQP
Ch. 25 - Prob. 10SQPCh. 25 - Prob. 11SQPCh. 25 - Prob. 1SQCh. 25 - Prob. 2SQCh. 25 - Prob. 3SQCh. 25 - Prob. 4SQCh. 25 - Prob. 5SQCh. 25 - Prob. 6SQCh. 25 - Prob. 7SQCh. 25 - Prob. 8SQCh. 25 - Prob. 9SQCh. 25 - Prob. 10SQCh. 25 - Prob. 11SQCh. 25 - Prob. 12SQCh. 25 - Prob. 13SQCh. 25 - Prob. 14SQCh. 25 - Prob. 15SQCh. 25 - Prob. 16SQCh. 25 - Prob. 17SQCh. 25 - Prob. 18SQCh. 25 - Prob. 19SQCh. 25 - Prob. 20SQ
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- Excess reserves are insurance from deposit outflow. Suppose you hold 15 million required reserves and 45 million excess reserves at the central bank. The total interest payment on reserves from the central bank is 0.3%. If you do not hold your excess reserves at the bank, you may take loans and earn 4% in average. What is the cost of holding excess reserve at the central bank?arrow_forwardSuppose a bank has a total deposit of $748 million. If the bank’s required reserves equal $253 million, total loans equal $368 million, then the bank has excess reserves of: Group of answer choices $109 million. $115 million. $127 million. $380 million. $495 million.arrow_forwardIf the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $10, then this bank A. must increase its required reserves by $10. B. will initially see its total reserves increase by $10.50. C. will be able to make new loans up to a maximum of $9.50. D. All of the above are correct.arrow_forward
- You just deposited $4,000 in cash into a checking account at the local bank. Assume that banks lend out all excess reserves and there are no leaks in the banking system. That is, all money lent by banks gets deposited in the banking system. Round your answers to the nearest dollar. If the reserve requirement is 20%, how much will your deposit increase the total value of checkable bank deposits? If the reserve requirement is 8%, how much will your deposit increase the total value of checkable deposits? Increasing the reserve requirement decreases the money supply. %24 %24arrow_forwardA commercial bank has actual reserves of $1 million and checkable-deposit liabilities of $9 million, and the required reserve ratio is 10 percent. The excess reserves of the bank are: Select one: a. $50,000 b. $100,000 c. $900,000 d. $1 millionarrow_forwardA bank currently has checkable deposits of $100,000, reserves of $30,000, and loans of $70,000. If the required reserve ratio is lowered from 20 percent to 15 percent, this bank can increase its loans bya. $10,000.b. $15,000.c. $75,000.d. $5,000.e. $0.arrow_forward
- The task I am struggling with: Tracy Williams deposits $500 that was in her sock drawer into a checking account at the local bank. The reserve ratio is 10%. a) how dies the deposit initially change the T-account of the local bank? How does it change the money supply? b) If the bank maintains a reserve ratio of 10%, how will it respond to the new deposit? c) if every time the bank makes a loan, the loan results in a new checkable bank deposit in a different bank equal to the amount of the loan, by how much could the total money supply in the economy expand in response to Tracy´s initial cash deposit of $500? Thank you very much for your help.arrow_forwardSuppose that we are a bank with $3,000 worth of deposits. We operate in an economy with a mandated reserve ratio of 12%. Suppose that the bank is keeping $450 in reserves currently, loaning out the rest of its deposits. 9. Is the bank meeting its reserve requirements? Does it have excess reserves? How much more or less must the bank lend out to just exactly meet its reserve requirements? 10. If the bank takes the action you prescribe in your answer to Question 9, how much will the total amount of deposits in the whole banking system change? Assume no cash drain. 11. Suppose instead that there is cash drain of 8%. Now, how much would this same action prescribed in your answer to Question 9 change the total amount of deposits in the whole banking system? 3.arrow_forwardA bank has outstanding loans of $7,500, reserves of $2,500, and deposit liabilities of $10,000. If the required reserve ratio is 10%, this bank: A. Is holding excess reserves of $1,000 B. Is in a position to make a new loan for $1,500 C. Is in a position to make a new loan for $2,500 D. Has less reserves than requiredarrow_forward
- Third National Bank has reserves of $20,000 and checkable deposits of $100,000. The reserve ratio is 20 percent. Households deposit $20,000 in currency into the bank, and the bank adds that currency to its reserves. What amount of excess reserves does the bank now have? Instructions: Enter your answer as a whole number. 2$arrow_forwardSay that First Commercial Bank has reserves of $100, loans at $400 and checkable deposits of $500. The required reserve ratio is 10%. If the bank has a deposit outflow of $40, is the bank in violation of the required reserve ratio? What is the maximum amount of deposit outflow the bank can sustain without violating the ratio?arrow_forwardThe State Bank of Oswald has cash reserves of $5,000, loans of $495,000, and deposits of $500,000. The bank maintains a reserve requirement of 1 percent. Calculate (show work) this bank’s excess reserves and write the answer below.arrow_forward
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