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Question
The reserve requirement is 0 percent on the first $6.0 million in transaction deposits, 3 percent on amounts between $6.0 million and $42.1 million, and 10 percent on amounts above $42.1 million.The First Bank of Boston has the following assets and liabilities (all amounts in millions of dollars):Assets
Reserves $5.0
Loans $345.0
Securities $70.0
Liabilities + Capital
Transaction deposits $75.0
Nontransaction deposits $315.0
Equity capital $30.0
a. Calculate the bank's excess reserves.Show your work.
b.Suppose First Bank makes a loan to a customer equal to the amount of the excess reserves you found in part a. Calculate the bank's excess reserves before the customer spends the proceeds of the loan.Show your work.
c. Now suppose the customer spends the proceeds of the loan. Calculate the bank's excess reserves. Show your work.
Answer
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