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What is the amount of excess reserves

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Q1. The following table shows the balance sheet for all banks combined in the banking system. All banks have a target reserve ratio of 12.5 percent.

Assets

Liabilities/Equity

Reserves

$180000

Demand deposits

$1200000

Loans

900000

Shareholder's equity

200000

Securities

220000

 

 

Fixed Assets

100 000

 

 

Totals

$1400000

Totals

$1400000

a) What is the amount of excess reserves?

b) What is the maximum amount that loans and deposits can be increased?

c) If the banking system were fully loaned up, by how much will the money supply have increased?

2. Assume the money market for the economy of San Pedro is in equilibrium.

a) Using a diagram, graphically illustrate equilibrium in the money market.

b) Now suppose there is an increase in the money supply. Explain and illustrate in the same diagram (in part a), the effect on an increase in the money supply.

Reference no: EM131344617

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