The balance sheet below is for chartered bank ABC.Assume the desired reserve ratio is 20 percent.All figures are in billions. Refer to the above information.The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

Question

The balance sheet below is for chartered bank ABC.Assume the desired reserve ratio is 20 percent.All figures are in billions.  Refer to the above information.The amount by which this single chartered bank and the amount by which the banking system can increase loans are respectively:

Quizplus · Accepted Answer

The excess reserves of the bank are $5,000 ($35,000 - $30,000). The maximum amount by which the banking system can increase loans is determined by the money multiplier, which is the reciprocal of the reserve requirement. In this case, the reserve requirement is 20%, so the money multiplier is 1/0.2 = 5. Therefore, the banking system can increase loans by a maximum amount of $5,000 x 5 = $25,000.

The Balance Sheet Below Is for Chartered Bank ABC