Suppose That the Bank Has the Following Balance Sheet If the Required Reserve Ratio Is 10 Percent,what Is the {\text

question 223

Essay

Suppose that the bank has the following balance sheet:
$\begin{array}{|l|l|}\hline {\text { Assets }} & {\text { Liabilities }} \\\hline \text { Reserves } \$ 75,000 & \text { Deposits } \$ 500,000 \\\hline \text { Loans } \$ 430,000 & \text { Net worth } \$ 5,000\\\hline\end{array}$
If the required reserve ratio is 10 percent,what is the maximum the bank can loan out? Suppose the bank makes this loan and the borrower spends the money,which is deposited in a different bank.Show the impact of these transactions on the bank's balance sheet.

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Definitions:

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