#### Details of this Paper

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

Description

solution

Question

4. 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?;You answered;The required reserve ratio is 0;The bank is holding \$400 of total \$2000 as reserve, which equals to 5% and the excess reserve stated above is 5% therefore there is no required reserve.;My answer was;Total Reserve Ratio = Reserves/Checking Deposits;= \$400/\$2000;= 0.2;=20%;Required Reserve Ratio = Total Reserve Ratio - Excess Reserve Ratio;Required Reserve Ratio = 20 % - 5% (given);= 15%

Paper#30420 | Written in 18-Jul-2015

Price : \$37