--%>
Assignment Help - homework help

Question based on consolidated balance sheet

Assume the simplified consolidated balance sheet illustrated below is for the whole chartered banking system. All of the figures are in billions. Desired reserve ratio =25 %.

1575_simplified consolidated balance sheet.png

a. What amount of excess reserves does the chartered banking system hold? Determine maximum amount the banking system might lend? Illustrate in column 1 how the consolidated balance sheet would appear after this amount has been lent. Determine the monetary multiplier?

b. Answer the questions in part a supposing that the reserve ratio is 20 %. Describe the resulting differentiation in the lending ability of the chartered banking system.

 

 

E

Expert

Verified

(a) Desired reserves is $50 billion (= 25% of $200 billion); thus excess reserves will be $2 billion (= $52 billion - $50 billion).  Maximum amount that banking system can lend is $8 billion (= 1/.25 - $2 billion).  Column (1) of Assets data =$52 billion; $48 billion; $108 billion.  Column (1) of Liabilities data= $208 billion.  Monetary multiplier is 4 (= 1/.25).

(b) Desired reserves = $40 billion (= 20% of $200 billion); thus excess reserves = $12 billion (= $52 billion - $40 billion).  Maximum amount banking system can lend = $60 billion (= 1/.20 - $12 billion).  Column (1) data for assets after loans (top to bottom); $52 billion; $48 billion; $160 billion.  Column (1) data for liabilities after loans:  $260 billion.  Monetary multiplier = 5 (= 1/.20).  The decrease in the reserve ratio increases the banking system’s excess reserves from $2 billion to $12 billion and enhances the size of the monetary multiplier from 4 to 5.  Lending capacity becomes 5 - $12 = $60 billion.

 

   Related Questions in Finance Basics

  • Q : Explain Workload Budget Workload Budget

    Workload Budget: Workload Budget means the budget year cost of presently authorized services, adjusted for modifications in caseload, enrollment, population, statutory cost-of-living adjustments, one-time expenditures, chaptered legislation, full-year

    		•
  • Q : Describe inventory is sometimes thought

    Inventory is sometimes thought of as an essential evil. Describe. Inventory ties up funds and these are not earning an explicit return. Some inventory is frequently necessary, however, as companies attempt to hold the lowest acceptable amount.

    		•
  • Q : Define Current Year Current Year (CY):

    Current Year (CY): It is a term utilized in budgeting and accounting to designate the operations of the current fiscal year in contrast to past or future periods.

    		•
  • Q : Describe accumulated depreciation

    Describe accumulated depreciation?Depreciation is the allocation of an asset's primary cost over time. Accumulated depreciation is the sum of all the depreciation cost that has been identified to date.

    		•
  • Q : Define Final Budget Summary Final

    Final Budget Summary: A document generated by the Department of Finance subsequent to enactment of the Budget Act that reflects the Budget Act, any vetoes to the language and/or appropriations, technical corrections to the Budget Act, and summing up t

    		•
  • Q : Why do businesses spend efforts to

    Why do businesses spend effort, time and money to generate forecasts?  Describe.Businesses succeed or fail based on how well prepared they are to deal along with the situations they confront in the future. Hence they expend considerable sum

    		•
  • Q : Computing the amount of excess reserves

    Normal 0 false false

  • Q : State time dimensions State time

    State time dimensions of the income statement, the balance sheet, and the statement of cash flows?  Describe. The income statement is such as a video: This measures a firm's profitability on a period of time (that can be a week, a

    		•
  • Q : Question on aggregate supply Normal 0

    Normal 0 false false

  • Q : Use of obtainable resources Normal 0

    Normal 0 false false