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Suppose First Main Street Bank, Second Republic Bank, and Third Fidelity Bank all have zero excess reserves. The required reserve ratio is 20%. Bob, a client of First Main Street Bank, deposits $1,500,000 into his checking account at First Main Street Bank.

Respuesta :

The following would be changes in Bob's Account :-

Assets: Reserves $1,500,000

Liabilities: Deposits $1,500,000

SOLUTION:-

Bob's deposit of $1,500,000 into First Main Street Bank results in the bank having both an asset and a debt.

The bank's reserves are increased by $1,500,000 on the T-asset account's side. Some of these extra reserves may be used by the bank to provide loans to other borrowers.

The $1,500,000 is shown as a demand deposit on the liability side of the T-account because Bob has the right to get his deposit back at any time by visiting the bank and asking for it, writing a check, or using a debit card.

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