1. Reserves/Reserve Requirements Review

2. Assignment 1) If the reserve ratio is 20 percent, what are the required reserves on a $25,000 deposit? 2) If the reserve ratio is 20 percent, what level of excess reserves does a bank acquire from a $25,000 deposit?

3. Use the data below to answer the next 3 questions: Assets Total Reserves: $15,000 Securities: $70,000 Loan: $15,000 3) What two items above are not necessary for calculating required or excess reserves? 4) If the reserve requirement is 6 percent, what is the amount of this bank’s required reserves? 5) If the bank does not sell any of its securities, the maximum amount of additional lending this bank can undertake is (excess reserves)? Liabilities Demand Deposits: $100,000

4. Use the following scenario to answer the next 3 questions: A bank has excess reserves of $10,000 and deposit liabilities of $40,000 when the required reserve ratio is 20 percent. 6) Required Reserves: 7) Total Reserves: 8) If the reserve ratio is raised to 25, what will the new required reserves be? 9) If the reserve ratio is raised to 25, what will the new excess reserves be? 10) If the bank loans out all excess reserves from answer #9, what is the maximum amount by which the money supply could rise as a result?

5. reserve requirement =.05 11) The fed buys $1 in bonds 12) Joe deposits $1 cash into checking 13) Bank decides to loan out $1 in excess reserves that it has been holding. FIND THE MAXIMUM POSSIBLE CHANGE IN THE: MONEY SUPPLY, LOANS, AND DEMAND DEPOSITS, FOR EACH SCENARIO ABOVE.

6. reserve requirement =.05 1) The fed buys $1 in bonds 2) Joe deposits $1 cash into checking 3) Bank decides to loan out $1 in excess reserves that it has been holding. 201920 19 20 1) 2) 3) M1 L DD

7. Answers

8. Answer Key 1) $5,000 2) $20,000 3) securities, loans 4) $6,000 5) $9,000 6) $8,000 7) $18,000 8)$10,000 9) $8,000 10) $32,000