assignment 6

# 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
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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• Spring '08
• Christianson
• Balance Sheet, Cheque, Deposit account

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