Answer to Question #235947 in Macroeconomics for Priest

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 Liabilities

Reserves 

Securities

Loans

R70.5

R219.5

R160

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. 

A. 11,11; R30; R 333

B. 0.09; R30,5; R160

C. 11,11; R30; R1778

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