# ECN-220 Module 6 Chapter 13 Problems: Money and Banks Solutions

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ECN-220 Module 6 Chapter 13 Problems: Money and Banks Solutions

Introduction to Economics - Money and Banks

Grand Canyon University

Complete problems 2, 3, and 9 in the textbook.

Textbook: The Economy Today (13th Edition)

Problems

2. Suppose a bank’s balance sheet looks as follows:

Assets                  Liabilities

Reserves \$   640     Deposits \$6,000

Loans 5,360

and banks are required to hold reserves equal to 10 percent of deposits.

(a) How much excess reserves does the bank hold?

(b) How much more can this bank lend?

3. Suppose a bank’s balance sheet looks like this:

Asset                                 s Liabilities

Reserves                Deposits   \$600

Excess   \$  70

Required   30

Loans   500

Total   \$600                Total   \$600

(a) What is the required reserve ratio?

(b) How much money can this bank still lend?

9. Suppose that a lottery winner deposits \$12 million in cash into her transactions account at the Bank of America (B of A). Assume a reserve requirement of 20 percent, no loans, and no excess reserves in the banking system prior to this deposit.

(a) Use step 1 in the following T-accounts to show how her deposit affects the balance sheet at B of A.

(b) Has the money supply been changed by her deposit?

(c) Use step 2 here to show the changes at B of A after the bank fully uses its new lending capacity.

(d) Has the money supply been changed in step 2?

(e) In step 3 the new borrower(s) writes a check for the amount of the loan in step 2. That check is deposited at another bank, and B of A pays the other bank when the check clears. What does the B of A balance sheet look like now?

(f) After the entire banking system uses the lending capacity of the initial (\$12 million) deposit, by how much will the following have changed?

Total reserves

Total deposits

Total loans

Cash held by public

The money supply

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