Balance sheet-actual reserves , Basic Statistics

(a)   The bank's excess reserves are its actual reserves less required reserves. Actual reserves are given as $450 from its balance sheet. Required reserves are given by the product of the required reserve ratio and demand deposits, i.e., 10% * $5,000 = $500. Thus the excess reserves are equal to $450 - $500 = -$50. This implies that the bank has no excess reserves and even it does not maintain the required reserve ratio.

(b)  The bank can lend an additional amount equal to its excess reserves. But since in this case, there are no excess reserves, the bank cannot lend anything.


Posted Date: 3/14/2013 3:34:39 AM | Location : United States

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