Description of this paper

Assume the public in the small country of Harvardia does not hold any cash.

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solution


Question

Assume the public in the small country of Harvardia does not hold any cash. Commercial banks, however, hold 5% of their checking deposits as excess reserves, regardless of the interest rate.;a. (5 pts.);Consider the balance sheet of one of several identical banks;ASSETS LIABILITIES & NET WORTH;Reserves $ 400 Checking Deposits $2,000;Loans $1,600 Net Worth $ 0;What is the required reserve ratio?;For 4a, shouldn't the calculation be as follows?;Total Reserve Ratio = Reserves/Checking Deposits;= $400/$2000;= 0.2;=20%;Total Reserve Ratio = Required Reserve Ratio + Excess Reserve Ratio;Required Reserve Ratio = 20 % - 5% (given);= 15%

 

Paper#30419 | Written in 18-Jul-2015

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