Assume the public in Nealland does not hold any cash. All commercial banks, however, hold 5% of their checking deposits aa excess reserves, regardless of the interest rate.
a. Consider the balance sheet of one of several identical banks:
|
ASSETS
|
LIABILITIES & NET WORTH
|
|
Reserves $ 400
|
Checking Deposits $2,000
|
|
Loans $1,600
|
Net Worth $ 0
|
What is the required reserve ratio?
b. If the total money stock (supply) is $100,000, find the total amount of cash reserves in the vaults of all banks in the economy.