Creating a new balance sheet

Reference no: EM1371042

Assume that a bank faces a balance sheet illustrated below, and the required reserve ratio is 20 percent.

ASSETS LIABILITIES
Reserves $50,000 Deposits $100,000
Loans $50,000
Total $100,000 Total $100,000

A. How much more could this bank loan out without acquiring additional funds?

B. Starting with the balance sheet above, suppose that a large depositor withdraws $50,000. With what action might the bank respond to this withdrawal, assuming other depositors are not available.

C. Draw a new balance sheet reflecting the end result after the changes explained in part B.

Reference no: EM1371042

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