1. Using the T-accounts of the First Bank and the Second Bank, describe what happens when Jane Brown...

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1. Using the T-accounts of the First Bank and the Second Bank, describe what happens when Jane Brown writes a $50 cheque on her account at the  First Bank to pay her friend Joe Green, who in turn  deposits the cheque in his account at the Second Bank.
2. What happens to reserves at the First Bank if one person withdraws $1000 of cash and another person  deposits $500 of cash? Use T-accounts to explain  your answer.
3. The bank you own has the following balance sheet:




Assets


Liabilities




Reserves


$ 75 million


Deposits


$500 million




Loans


$525 million


Bank capital


$100 million




If the bank suffers a deposit outflow of $50 million and has a desired reserve ratio on deposits of 10%, what actions must you take to keep your bank from failing?

Robert · Accepted Answer

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1. Using the T-accounts of the First Bank and the Second Bank, describe what happens when Jane Brown writes a $50 cheque on her account at the First Bank to pay her friend Joe Green, who in turn...

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Assets	Liabilities
Reserves	$ 75 million	Deposits	$500 million
Loans	$525 million	Bank capital	$100 million