Suppose that the bank has the following balance sheet: If the bank’s reserve...
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Suppose that the bank has the following balance sheet:
Assets | Liabilities | ||
Reserves | $75 000 | Deposits | $500 000 |
Loans | $430 000 | Net Worth | $5 000 |
If the bank’s reserve ratio is 0.1, what is the additional amount the bank can loan out at most? Suppose that the bank intends to loan out the maximum amount it can. Assume that whoever took out the loan transfers this amount to a person who has a savings account at another bank. Show the immediate impact of the loan on the bank’s balance sheet.
You don’t need to draw a table for the balance sheet, just discuss what happens to each component of the balance sheet. [max 80 word limit]
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