Question

Suppose that Karen deposits $500 into her checking account at the bank. The reserve requirement for Karen's bank is 12%. Assume the bank does not want to hold any excess reserves of new deposits.A. Use this information to complete the table below to show how the bank's assets and liabilities change when Karen deposits the $500.Assets LiabilitiesChange in reserves: Change in deposits:Change in loans: B. Why are deposits considered liabilities for a bank?a) Deposits must be kept as reserves at the Federal Reserve.b) Deposits can be withdrawn at any time.c) Deposits can be loaned out by the bank.d) Deposits pay interest to the owner.

Answer 1

Answer and Explanation:

According to the scenario, computation of the given data are as follow:-

a.)  

Assets                    Amount($)            Liabilities               Amount($)

Change in reserves ($500 ×12%) 60 Change in deposits 500

Change in loans ($500 - $60) 440  

B) Customers can withdraw the amount of the money at any time from the bank whenever they have a need for money and at that time this is the liability of the bank to pay that amount to the customer which he wants from their savings. This is the reason that deposits are considered as liabilities for the bank. So option (b) is correct.