Question

"Suppose that Ava withdraws $300 from her savings account at Second Bank. The reserve requirement facing Second Bank is 10%. Assume the bank does not wish to hold any excess reserves of new deposits. Use this information to complete the balance sheet below to show how Second Bank's assets and liabilities change when Ava withdraws the $300 from the bank."
Assets Liabilities
Change in Reserves: $_______________ Change in Deposits: $_______________
Change in Loans: $_______________

Answer 1

Answer:

Assets

Change in Reserves: $-30

Change in Loans: $ -270

Liabilities

Change in Deposits: $-300

Explanation:

If Ava withdraws $300 from her savings account, the reserve requirement will be 10%. Which means there will be a fall in the loan amount as well as the reserve amount, since $300 is withdrawn.

Therefore the change in reserve will be 10 percent of the withdrawn amount and the change in loan can be calculated by subtracting the change in reserve from the withdrawn amount.

Reserve =300×10/100

=$−30

The negative sign means the reserve is decreasing.

Loan =$300−$30

= $−270

The negative sign means the loan is decreasing.

-30+/- 270 = -300 which will be the change in deposits

Hence:

Change in Reserves: $-30

Change in Loans: $ -270

Liabilities

Change in Deposits: $-300