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2 July, 18:10

Suppose that Karen deposits $600 into her checking account at the bank. The reserve requirement for Karen's bank is 13%. Assume the bank does not want to hold any excess reserves of new deposits. a. Use this information to complete the balance sheet below to show how the bank's assets and liabilities change when Karen deposits the $600.

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  1. 2 July, 19:01
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    Karen's bank change in balance sheet would be:

    Asset:

    Change in reserves: $78

    Change in loans: $522

    Liabilities

    Change in deposits: $600

    Explanation:

    Karen deposits $600 into her checking account at the bank means the amount of deposits held by Karen bank would increase by $600. This increase automatically means the fund is available for lending. However, there is a regulatory reserve requirement of 13%, which translates to $78. This amount would not be lent to customer but rather kept as reserve with the Fed. Therefore, the available fund for lending (loans) is $522.
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