Question

macroeconomics Answer the question on the basis of the given consolidated balance sheet of the commercial banking system. Assume that the reserve requirement is 20 percent. All figures are in billions. Assets Liabilities & Net Worth Reserves $200 Checkable Deposits $1,000 Securities 300 Stock Shares 400 Loans 500 Property 400 If the Fed increased the reserve requirement from 20 percent to 25 percent, a deficiency of reserves in the commercial banking system of _____ would occur and the monetary multiplier would fall to ____.

Answer 1

The correct answer is $50 billion and 4.

Step-by-step explanation:

According to the scenario, the given data are as follows:

Total deposits = $1,000 Billions

Reserve = 20% of total deposit = $200 billion

If reserve requirement change to 25%, then

Reserve = 25% of total deposit = $250 billion

Change in reserve = $250 billion - $200 billion = $50 billion

So, deficiency of reserve = $50 billion

We can calculate the monetary multiplier by using following formula:

Monetary multiplier = 1 ÷ Reserve ratio = 1 ÷ 25%

= 4