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