Assume a Bank has $5 million in deposits and $1 million in vault cash. If the bank holds $1million in excess reserves and the required reserves ratio is 8 percent,

Assume a Bank has $5 million in deposits and $1 million in vault cash. If the bank holds $1million in excess reserves and the required reserves ratio is 8 percent, what level of deposits arebeing held?($6,000,000/.08)+ 1,000,000=$75,000,000+$1,000,000= $76,000,000P1- Assume that Bank A receives a primary deposit of $100,000 and that it must keep reservesof 10 percent against deposits.

a. Prepare a simple balance sheet of assets and liabilities for the bank immediately after thedeposit is received.b. Assume Bank A makes a loan in the amount that can be “safely lent.” Show what thebank’s balance sheet of assets and liabilities would look like immediately after the loan.c. Now assume that a check in the amount of the “derivative deposit” created in (b) waswritten and sent to another bank. Show what Bank A’s (the lending bank’s) balance sheetof assets and liabilities would look like after the check is written

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2- Assume a financial system has a monetary base of $25 million. The required reserves ratio is 10 percent, and there are no leakages in the system.

a. What is the size of the money multiplier?

b. What will be the system’s money supply?

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