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Bank Reserves

Suppose that the reserve ratio is .25, and that a bank has actual reserves of $15,000, loans of $40,000, and demand deposits of $50,000.

A. Excess reserves are $____________________.

B. This bank, being a single bank in a multibank system, can safely lend $____________________.

C. The multibank system can safely lend $__________________.

D. It is possible for the monetary base to increase by a total of $___________________. Assume now that the Fed lowers the reserve ratio to .20:

E. This bank, being a single bank in a multibank system, can now safely lend $_____________________.

F. The multibank system can safely lend $____________________.

G. It is now possible for the monetary base to increase by a total of $________________________.

H. The increase/decrease in the potential money supply because of the decrease in the required reserve ratio is $_____________________.

 

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