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Reserves/Reserve Requirements Review 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? Use the data below to answer the next 3 questions: • • • • Assets Total Reserves: $15,000 Securities: $70,000 Loan: $15,000 • Liabilities • Demand Deposits: $100,000 • 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)? 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? 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. 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. M1 1) 2) 3) 20 19 20 L 19 19 20 DD 20 20 20 Answers 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