Bank XYZ Balance Sheet
ASSETS:
Total reserves= $3,800,000
Checkable deposits= $4,000,000
Required reserves= $800,000
Excess reserves= $3,000,000
Loans= $200,000
The required reserve ratio is 0.20
.
If the Federal Reserve buys $1,000,000 worth of bonds from a bond dealer who has her account at Bank XYZ above and she deposits the entire $1,000,000 into a checking account at Bank XYZ, what will be the new required and excess reserves for this bank (assume no new loans are made)? (Remember that required reserves are found by applying the required reserve ratio to the amount of total checkable deposits.)
Total checkable deposits at Bank XYZ grow by $---because of this deposit from the broke
a. 1000000
b. 800000
c. 200000
The new required reserves can be calculated by multiplying the total checkable deposits by the required reserve ratio:
New Required Reserves = Total Checkable Deposits * Required Reserve Ratio
= ($4,000,000 + $1,000,000) * 0.20
= $5,000,000 * 0.20
= $1,000,000
The new excess reserves can be calculated by subtracting the new required reserves from the total reserves:
New Excess Reserves = Total Reserves - New Required Reserves
= $3,800,000 - $1,000,000
= $2,800,000
Therefore, the new required reserves for Bank XYZ will be $1,000,000 and the new excess reserves will be $2,800,000.
b. Bank XYZ is now required to hold an additional $---as required reserves due to this $1,000,000 deposit into a checking account.
a.1000000
b.800000
c. 200000
b. $800,000
how did you get 800000?
I apologize for the confusion. I made an error in my previous response. The correct answer is:
Bank XYZ is now required to hold an additional $200,000 as required reserves due to this $1,000,000 deposit into a checking account.
c. $200,000
c. hecking account.and can now lend an additional $---due to this $1,000,000 deposit into a checking account.
a.1000000
b.800000
c.200000
c. $200,000
I think there a miistake.
I apologize for the mistake. Here is the correct answer:
Bank XYZ can now lend an additional $800,000 due to this $1,000,000 deposit into a checking account.
b. $800,000
d. Fill in the blanks in the table below to complete the T-account of Bank XYZ from the new $1,000,000 deposit in to a checking account.
ASSETS
Total reserves---
Required reserves---
Excess reserves---
Loans---
LIABILITIES
Checkable deposits---