Question 2 The balance sheet below is for the EFG Bank Assum

Question 2+ The balance sheet below is for the EFG Bank. Assuming a Desired Reserve Ratio of 20 percent, answer all parts of the following question. Liabilities and net worth Assets Reserves Loans Securities Property $ 90,000 Demand Deposits $220,000 $ 92,000 $100,000 S 98,000 Capital Stock $160,000+ Refer to the above information. + a) (3 marks) How much excess reserve does this chartered bank have, - b) (3 marks) what is the maximum amount this bank can safely lend out and, c) (4 marks) what is the maximum money-creating potential of the chartered banking system?\'

Solution

a) Required reserve = 20% of demand deposits = 20% of 220,000 = 44000

Excess reserve = Total reserves - Required reserves = 92000 - 44000 = 48000

b) Bank can lend out its deposits after keeping 20% of it as reserves.

Maximum amount that can be lend = 220,000 - 20% of 220,000 = 220,000 - 44000 = 176,000

c) Money supply = 1/Required reserve x Deposits = 1/0.20 x 176000 = 880,000