Answer to Question #231437 in Macroeconomics for Student

Question

Suppose the simplified consolidated balance sheet shown below is for the entire commercial banking system. All figures are in billions of rands. The reserve ratio is 9%.

Table 2: Simplified Consolidated Banking System Balance Sheet

Assets 

Reserves    R70.5      

Securities R219.5

Loans R160

Liabilities

Deposits R450            

Based on the information above: The Money multiplier is_______. The value of excess reserves in the commercial banking system is ___ billion. If these excess reserves were loaned out, ceteris paribus, the total value of additional loans created would be___ billion. 

0.09; R30,5; R160

11,11; R30; R1778

11,11; R30; R 333

40.5; R30; R5,6

Answer 1

Reserves = required reserves + excess reserves

required reserve ratio $= 9\% = 0.09$

Required reserves $= 0.09 \times 450 = 40.5$

Excess reserves $= 70.5 - 40.5 = 30$

loans created$=\frac{excess\space reserves}{reserve\space ratio}=\frac{30}{0.09}=333.33$

money multiplier$=\frac{1}{0.09}=11.11$