Question

Consider the following balance sheet for the Wahoo Bank. Use it to answer the two questions that follow. Use a required reserve ratio of 10% and assume that the bank keeps no excess reserves.
Wahoo Bank Balance Sheet

Assets Liabilities and net worth

Government $1,600 Liabilities:
securities
Required reserves $400
Excess reserves $0
Loans $ 3,000 Checking deposits $4,000
Net worth $1,000
Total assets $5,000

1.What will change on the balance sheet if Shantee withdraws $200 from her checking account?

Choose one or more:

A. Required reserves decrease by $200.

B. Outstanding liabilities increase by $200.

C. Required reserves decrease by $20.

D. Outstanding liabilities decrease by $200.

2.What will change on the bank's balance sheet if Francisco deposits $500 into his checking account?

Choose one or more:

A. Required reserves increase by $50.00.

B. Outstanding liabilities decrease by $500.

C. Outstanding liabilities increase by $500.

D. Required reserves increase by $500.

Answer 1

Answer:

1. What will change on the balance sheet if Shantee withdraws $200 from her checking account?

Reserved Ratio = 10% = 200 * 10% = 20

Since Shantee withdraws 200$, The balance of the checking deposits on the liability side will reduce by $200, leaving a balance of $3800.

Under assets, the required reserves will be reduced by 20 leaving a new value of $380 and the loans will be reduced by $180 to $2820.

So the correct answers are:

C. Required reserves decrease by $20

D. Outstanding liabilities decrease by $200.

2. What will change on the bank's balance sheet if Francisco deposits $500 into his checking account?

Reserved Ratio = 10% = 500 * 10% = 50

Checking deposits will be increase by $500 for a total of $4500. Required Reserve will increase by 50 to $450.

So the correct answers are:

A. Required reserves increase by $50.00.

C. Outstanding liabilities increase by $500.