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 reduced the reserve requirement from 20 percent to 16 percent,excess reserves in the commercial banking system would increase by _____ and the monetary multiplier would rise 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 reduced the reserve requirement from 20 percent to 16 percent,excess reserves in the commercial banking system would increase by _____ and the monetary multiplier would rise to ____.

Quizplus · Accepted Answer

The excess reserves can be calculated as the difference between actual reserves and required reserves. If the reserve requirement is reduced from 20% to 16%, the required reserves will decrease by $30 billion (10% of $300 billion deposits). Therefore, excess reserves will increase by $30 billion.

The monetary multiplier can be calculated as 1/required reserve ratio. If the reserve requirement is reduced from 20% to 16%, the required reserve ratio will be 1/0.16 = 6.25. Therefore, the monetary multiplier will rise to 6.25.

Therefore, the correct answer is B.

Answer the Question on the Basis of the Following Consolidated