Question

Suppose that the economy's entire money supply equals checkable deposits in the amount of $800,000 held in first main street bank. The required reserve ratio (r) is 25%, with no excess reserves and no cash leakage. Complete the following table to reflect the relevant part of the balance sheet for first main street bank (before the bank makes any new loans).

Answer 1

The balance sheet for First Main Street Bank would show required reserves of $200,000 and loans available to be issued totaling $600,000, given a required reserve ratio of 25% on checkable deposits of $800,000.

Step-by-step explanation:

The student is asking to complete the balance sheet for First Main Street Bank, given that the economy's money supply equals checkable deposits of $800,000 and the required reserve ratio (r) is 25%. With no excess reserves and no cash leakage, the bank must hold 25% of the checkable deposits as reserves, which amounts to $200,000. This $200,000 will be the bank's required reserves, and the remaining $600,000 (75% of $800,000) is available to be given out as loans.