Answer the question on the basis of the following consolidated balance sheet of the commercial banking system.Assume that the reserve requirement is 20 percent.All figures are in billions and each question should be answered independently of changes specified in all preceding ones. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property}
\end{array}
\begin{array}{l}
\
\$ 200 \
300 \
500 \
400
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text { Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$1,100\
400\
\
\
\end{array}
\end{array}$

Refer to the given data.If the Fed increased the reserve requirement from 20 percent to 25 percent,a deficiency of reserves in the commercial banking system of _____ would occur and the monetary multiplier would fall to ____.

Question

Answer the question on the basis of the following consolidated balance sheet of the commercial banking system.Assume that the reserve requirement is 20 percent.All figures are in billions and each question should be answered independently of changes specified in all preceding ones. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$ 200 \
300 \
500 \
400 
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$1,100\
400\
\
\
\end{array}
\end{array}$

Refer to the given data.If the Fed increased the reserve requirement from 20 percent to 25 percent,a deficiency of reserves in the commercial banking system of _____ would occur and the monetary multiplier would fall to ____.

Quizplus · Accepted Answer

Assuming that the total deposits in the banking system remain unchanged, the increase in the reserve requirement from 20 percent to 25 percent means banks have to hold an additional 5 percent of deposits in reserve. This amounts to $50 billion ($1,000 billion x 5%). As a result, the amount of excess reserves in the system will fall by $50 billion, leading to a decrease in the monetary multiplier from 5 to 4. Therefore, the correct answer is (C) $50 billion and 4.

Answer the Question on the Basis of the Following Consolidated