PROBLEM ON
MONEY AND BANKING
The Kangaroo Bank in Australia has the following balance sheet:
Assets
Reserves 5,000
Loans 20,000
Bonds 15,000
Mortgages 10,000
Liabilities
Deposits 50,000
I. The effect of a cash deposit
a. Assume that all the bank's reserves are required reserves.
b. Assume that Ms. Shelkova deposits an additional 10,000 in this bank.
QUESTIONS
Compute the following:
1. The required reserve ratio in Australia __________
2. Total deposits in the Kangaroo Bank __________
3. Actual reserves in the Kangaroo Bank __________
4. Required reserves in the Kangaroo Bank __________
5. Excess reserves of the Kangaroo Bank _________
6. The change in currency in circulation __________
7. The change in bank deposits __________
8. The change in the M1 __________
II. The effect of a bank loan
a. Assume that after receiving Ms. Shelkova's deposit, the Kangaroo bank
lends out all of its excess reserves to Mr. Ahmetov who is planning to renovate
his house.
b. Assume that Mr. Ahmetov takes out the entire loan in the form of cash
and uses the money to pay Ms. Arynova for the work she is doing in renovating
his house.
QUESTIONS
1. Compute the balance sheet items at the Kangaroo bank.
Assets
Reserves ______________
Loans ______________
Bonds ______________
Mortgages ______________
Liabilities
Deposits ______________
2. Calculate what has happened to the money supply because the bank made
this loan to Mr. Ahmetov:
The change in currency in circulation __________
The change in bank deposits __________
The change in the M1 __________
III. The effect of another cash deposit
Assume that Ms. Arynova takes all the money she received from Mr. Ahmetov
and deposits it in the Kangaroo Bank.
QUESTIONS
Compute the following:
1. Total deposits in the Kangaroo Bank __________
2. Actual reserves in the Kangaroo Bank __________
3. Required reserves in the Kangaroo Bank __________
4. Excess reserves of the Kangaroo Bank _________
5. The change in the M1 __________