Answered: Table 29-3 The First Bank of Roswell…

ECON MACRO

5th Edition

ISBN:9781337000529

Author:William A. McEachern

Publisher:William A. McEachern

Chapter14: Banking And The Money Supply

Section: Chapter Questions

Problem 2.3P

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Table 29-3

The First Bank of Roswell
Assets	Liabilities
Reserves	$30,000	Deposits	$200,000
Loans	170,000

Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $60,000 into his account at the bank. If the bank takes no other action it will

a. be unable to make any new loans.

b. be in a position to make new loans equal to a maximum of $6,000.

c. have $4,000 in excess reserves.

d. have $64,000 in excess reserves.

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

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Required reserve ratio is the percentage of deposits that must be held as required reserves by banks.

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