Use the following balance sheet for the ABC National Bank in answering the question.Assume the required reserve ratio is 20 percent. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property}
\end{array}
\begin{array}{l}
\
\$ 27,000 \
50,000 \
33,000 \
200,000
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text { Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$1,100\
200,000\
\
\
\end{array}
\end{array}$

Refer to the data.Assuming the bank loans out all of its remaining excess reserves as a checkable deposit,and has a check cleared against it for that amount,its reserves and checkable deposits will now be:
A) $25,000 and $122,000 respectively.
B) $22,000 and $110,000 respectively.
C) $32,000 and $115,000 respectively.
D) $22,000 and $105,000 respectively.

Question

Use the following balance sheet for the ABC National Bank in answering the question.Assume the required reserve ratio is 20 percent. $\begin{array}{c}
\begin{array}{lll}
\quad\quad\quad\underline{\text { Assets}}\
\text { Reserves}\
\text { Securities}\
\text { Loans}\
\text { Property} 
\end{array}
\begin{array}{l}
\
\$ 27,000 \
50,000 \
33,000 \
200,000
\end{array}
\begin{array}{lll}
\quad\quad \underline{\text { Liabilities \& Net Worth }}\
\text { Checkable Deposits}\
\text {  Stock Shares}\
\
\
\end{array}
\begin{array}{lll}
\
\$1,100\
200,000\
\
\
\end{array}
\end{array}$

Refer to the data.Assuming the bank loans out all of its remaining excess reserves as a checkable deposit,and has a check cleared against it for that amount,its reserves and checkable deposits will now be:
A) $25,000 and $122,000 respectively.
B) $22,000 and $110,000 respectively.
C) $32,000 and $115,000 respectively.
D) $22,000 and $105,000 respectively.

Quizplus · Accepted Answer

The excess reserves are calculated as the actual reserves ($22,000) minus the required reserves ($20,800), which equals $1,200. Therefore, if the bank loans out all its remaining excess reserves, it will have an increase in checkable deposits of $1,200.

New reserves will be $22,000 minus the $1,200 in excess reserves that were loaned out, which equals $20,800.

New checkable deposits will be $110,000 (original checkable deposits) plus the $1,200 in new deposits from the excess reserves loaned out, which equals $111,200.

Therefore, the correct answer is B, with reserves of $20,800 and checkable deposits of $111,200.

Use the Following Balance Sheet for the ABC National Bank