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Assume the public in Sylvania holds $4 billion in cash. All commercial banks are required...

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Finance

Assume the public in Sylvania holds $4 billion in cash. All commercial banks are required to hold 20% of their checking deposits as reserves. All banks in Sylvania are identical, and have the following identical balance sheets:

ASSETS

LIABILITES & BANK CAPITAL

Reserves

$ 50M

Checking Deposits

?

Loans

$ 300M

Net Worth

$ 150M

Assume that this balance sheet is complete, i.e., lists all assets and capital of these banks, and that the only liability of the banks is checking deposits.

What percentage of checking deposits is each of these banks holding as excess reserves?If the total money stock (supply) is $10B, find the total amount of reserves held by banks in the economy.

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