Suppose a banking system with the following balance sheet has no excess reserves. Assume that banks will make loans in the full amount of any excess reserves that they acquire and will immediately be able to eliminate loans from their portfolio to cover inadequate reserves

         Assets                                                          l                                        Liabilities

(In Millions)                                                         l                                     (In Millions)

Total Reserves              $30                                l           Transactions Accounts                                         $300

Securities                      $ 90                                l

______                          l

Loans                            _180__                         l

       Total                  _______                            l            Total                                                                     $300

 

(a) What is the reserve requirement?

(b) Suppose the reserve requirement is changed to 5 percent. Reconstruct the balance sheet of the the total banking system after all banks have fully utilized their lending capacity.

Posted Date: 3/16/2013 6:24:31 AM | Location : United States

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