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How much is the change in the required reserves

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Question - Assume that Money Wang sells his bonds to BSP amounting to P50,000. From this, Money Wang receives a check awarded by BSP with the same amount. Money Wang deposits the check at Metrobank. In the banking system, BSP's required reserve ratio is 20%, and that the banking system currently has no excess reserves. Answer the following questions:

1. By how much will be the change in Metrobank's checkable deposit on its balance sheet?

2. How much is the change in the required reserves and the excess reserves on Metrobank's balance sheet?

3. Now assume that Metrobank lends out all of its excess reserves to Roberta Marasigan. Determine the amount that Metrobank can lend to Roberta Marasigan.

4. Roberta Marasigan deposits the loaned amount in BDO. BDO, just like Metrobank, loans out also all of its excess reserves from Roberta Marasigan's deposit to Noella Bautista.

A. What will be the amount of the loan by BDO?

B. Determine the change in the checkable deposit on the balance sheet of BDO.

5. Now think of this process to repeat again and again in the banking system.

A. What is the banking system's money multiplier?

B. Given the above money multiplier, by how much will the total money supply change due to the purchase of bonds by the BSP?

6. Assume this time that the government, through BSP, wants to use this P50,000 bond purchase to target an increase in the total money supply worth P350,000.

Determine the required reserve ratio that will be needed in order to reach that target.

Reference no: EM132978151

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