What is the maximum amount the banking system might lend

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Suppose the simplified consolidated balance sheets shown in the right column is for the entire commercial banking system and that all figures are in billions of dollars. The reserve ratio is 25 percent.

a. What is the amount of excess reserves in this commercial banking system? What is the maximum amount the banking system might lend? Show in columns 1 and 1' how the consolidated balance sheet would look after this amount has been lent. What is the size of the monetary multiplier?

b. Answer the question in part "a" assuming the reserve ratio is 20 percent. What is the resulting differences in the amount that the commercial banking system can lend?

Reference no: EM13157788

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