Bank Balance Sheets



What is the required reserve ratio of this bank assuming this bank is holding no excess reserves?

Required reserves is the amount of money the bank to hold in reserves as a percentage of total amount of money deposited into the bank. The amount of reserves is $500.

The total amount of money that consumers deposit into the bank is known as "demand deposits." That number is $5000, as you can see on the table.

The required reserve ratio is $500 / $5000 = 10%.

If the Fed does an open market operation...

If the bank buys $7000 in bonds from the public. What is a) The total increase in demand deposits? b) The maximum total increase in loans?

The total increase in demand deposits is the same amount of +$7000 because people receive checks from the Fed and deposit their checks at the bank. This $7000 is new money added to the money supply.

The bank's loaning capabilities increase by $6300 because it has to reserve 1/10th of $7000 as required reserves.