Q2:(30 marks)Assume that the public in an economy holds no cash,and all commercial banksare identical.Answer the following questions:1)Consider the balance sheet of one representative bank:AssetsLiabilitiesBank reserves￡800Demand Deposits￡4,000Loansf3,200If the excess reserve ratio is 2.5%,what is the reserve requirement ratio by the central bank?(8marks)2)If the total money stock(supply)is￡lO0 million,what’s the total amount of bank reservesheld in the banking system.Show your work.(8 marks)3)How many commercial banks are there in this economy?(4 marks)4)Now the reserve requirement ratio drops to 10%due to the new policy from the central bank.How would the balance sheet adjust for a commercial bank,if it still keeps the excess reserveratio at 2.5%?Present the calculation process for components in the new balance sheet.(10marks)
