Q1. The following table shows the balance sheet for all banks combined in the banking system. All banks have a target reserve ratio of 12.5 percent.
|
Assets
|
Liabilities/Equity
|
|
Reserves
|
$180000
|
Demand deposits
|
$1200000
|
|
Loans
|
900000
|
Shareholder's equity
|
200000
|
|
Securities
|
220000
|
|
|
|
Fixed Assets
|
100 000
|
|
|
|
Totals
|
$1400000
|
Totals
|
$1400000
|
a) What is the amount of excess reserves?
b) What is the maximum amount that loans and deposits can be increased?
c) If the banking system were fully loaned up, by how much will the money supply have increased?
2. Assume the money market for the economy of San Pedro is in equilibrium.
a) Using a diagram, graphically illustrate equilibrium in the money market.
b) Now suppose there is an increase in the money supply. Explain and illustrate in the same diagram (in part a), the effect on an increase in the money supply.