Question : 6) “To count as required reserves, the reserves must be : 1227839

6) “To count as required reserves, the reserves must be on deposit at the bank’s district Federal Reserve Bank.” Is the previous statement correct or incorrect?

Answer:  The statement is incorrect. Currency held in the bank’s vault also counts as reserves.

Topic:  Banks’ reserves

Skill:  Level 1: Definition

Section:  Checkpoint 11.2

Status:  CT

7) The First National Bank of Townville has $125,000 in U.S. government securities, $200,000 in savings accounts, $300,000 in checking accounts, $50,000 in its reserve account at the Fed, $10,000 of currency in its vault, and loans of $250,000. What is the amount of its reserves?

Answer:  Reserves include the bank’s deposit in its reserve account at the Fed and the currency in its vault. Therefore the First National Bank of Townville has $50,000 + $10,000 = $60,000 in reserves.

Topic:  Banks’ reserves

Skill:  Level 3: Using models

Section:  Checkpoint 11.2

Status:  WM

8) The Second National Bank of Townville has $400,000 in checking deposits, $125,000 in savings deposits, $500,000 in loans, $20,000 in its reserve account at the Fed, and $5,000 of currency in its vault. What is the amount of its reserves?

Answer:  Reserves include the bank’s deposit in its reserve account at the Fed and the currency in its vault. Therefore the Second National Bank of Townville has $20,000 + $5,000 = $25,000 in reserves.

Topic:  Banks’ reserves

Skill:  Level 3: Using models

Section:  Checkpoint 11.2

Status:  WM

9) The Second National Bank of Townville has $400,000 in checking deposits, $125,000 in savings deposits, $500,000 in loans, $20,000 in its reserve account at the Fed, and $5,000 of currency in its vault. What is the amount of these assets and liabilities that is in M1?

Answer:  The only deposit that is in M1 is the checking deposits, so the amount that is in M1 is checking deposits of $400,000.

Topic:  Bank’s balance sheet

Skill:  Level 3: Using models

Section:  Checkpoint 11.2

Status:  MR

10) A bank has checking deposits of $400, saving deposits of $900, time deposits of $900, loans of $950, government securities of $900, outstanding credit card balances of $400, currency in its vault of $40, and deposits in its reserve account at the Fed of $40.

a.What is the amount of this bank’s deposits that are in M1?

b.What is the amount of this bank’s deposits that are in M2?

c.What is the amount of this bank’s reserves?

Answer: 

a.The only deposit that is in M1 is the checking deposits, so the amount of this bank’s deposits that are in M1 is $400.

b.Deposits in M2 include checking deposits, saving deposits, and time deposits. Therefore the amount of this bank’s deposits that are in M2 equals $400 + $900 + $900 = $2,200.

c.Reserves are the sum of the currency in the bank’s vault plus its deposits in its reserve account at the Fed. Therefore the bank’s reserves are $40 + $40 = $80.

Topic:  Bank’s balance sheet

Skill:  Level 3: Using models

Section:  Checkpoint 11.2

Status:  NAU