4000 4000 assume that the reserve ratio is r 10 10

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4000 4000 Assume that the reserve ratio is r = .10 (10%).
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Econ 350 Winter 2012 Assignment Six 2 a. Does FirstBank have excess reserves? If so, of how much? It does have a excess reserves,r=10% RR= 4000*10%=400 RR=400, ER= R-RR= $490-$400=$90, so excess reserves is $90 b. Suppose that FirstBank desires to hold no excess reserves, so it loans out its excess reserves to borrowers. How does the balance sheet change? Either use T-accounts or a new balance sheet to show. Assets Liabilities reserves $490-$90=$400 demand deposits 4000 loans $3510 +$90=$3600 4000 4000 c. Starting back in a), what is the maximum deposit outflow that FirstBank can sustain without affecting other parts of the balance sheet? Max deposit outflow is X 490-X=10%*(4000-X) So X=100, the maximum deposit outflow is $100 3. Using T-accounts for Second Bank, please show the initial effects of the following events. Use a separate T-account for each. a. A cash deposit of $500 into a checking account. Assets Liabilities + $500 ( cash vault) +$ 500 ( demand deposit) b. A $200 check is deposited into a savings account. Assets Liabilities +$200 cash items in process of collection + $200 savings account
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Econ 350 Winter 2012 Assignment Six 2 e. An open market purchase of $4 million. The Fed buys $4 million worth of securities from Second Bank.
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