The following is the balance sheet for Raymond Bank, one of many commercial banks in a country in which the banking system has limited reserves.
Assume a percent reserve requirement.
(a) Calculate Raymond Bank’s required reserves. Show your work.
(b) Calculate the maximum amount of additional loans that Raymond Bank can make without selling its holdings of government securities. Show your work.
(c) Assume that Raymond Bank and other banks now lend out all excess reserves.
(i) Calculate the maximum possible change in demand deposits throughout the banking system. Show your work. (ii) What is the maximum possible change in total reserves throughout the banking system?
(d) Suppose that the country’s central bank purchases of Raymond Bank’s holdings of government securities as part of its open-market operations. Do Raymond Bank’s required reserves initially increase, decrease, or remain the same as a result of the central bank’s purchase? Explain.