Question of the Day: Day Sixteen

Assume that there are 100 banks in Country X, and that each bank has the same amount of assets and liabilities. The amount of those assets and liabilities for the typical bank (e.g. Bank A) are provided below:

Assets at Bank A
Total Reserves: $1 million
Government Bond holdings: $500,000
Loans: $2 million
Other (Misc) Assets: $500,000

Liabilities at Bank A
Demand Deposits: $4 million

Assume that the required reserve ratio is 10%. Based on this assumption and the information provided above, please the answer the following questions.

1. What quantity of required reserves does Bank A currently hold?

2. What quantity of excess reserves are currently held at Bank A?

3. If Bank A decided to loan out all of their available excess reserves, describe how the money supply would change (not necessarily the full impact, but the initial impact over the first few days after loans are made).