Assume the public in the small country of harvardia

Reference no: EM13336171

4. Assume the public in the small country of Harvardia does not hold any cash. Commercial banks, however, hold 5% of their checking deposits as excess reserves, regardless of the interest rate.

a.Consider the balance sheet of one of several identical banks:

ASSETS LIABILITIES & NET WORTH
Reserves $ 400 Checking Deposits $2,000
Loans $1,600 Net Worth $ 0

What is the required reserve ratio?

For 4a, shouldn't the calculation be as follows?

Total Reserve Ratio = Reserves/Checking Deposits
= $400/$2000
= 0.2
=20%

Total Reserve Ratio = Required Reserve Ratio + Excess Reserve Ratio
Required Reserve Ratio = 20 % - 5% (given)
= 15%

Reference no: EM13336171

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