Answer:
Balance Sheet B
Explanation:
Given Data:
Balance Sheet A
Assets Liabilities
Reserves-- $75 million Deposits --$500 million
Loans-- $525 million Capital --$100 million
Balance Sheet B
Assets Liabilities
Reserves-- $100 million Deposits-- $500 million
Loans--- $500 million Capital-- $100 million
Representing each balance sheet as follows:
Balance Sheet A
Assets Amount Liabilities Amount
Reserves $75 million Deposits $500 million
Loans $525 million Capital $100 million
Total: $600 $600 million
Balance Sheet B
Assets Amount Liabilities Amount
Reserves $100 million Deposits $500 million
Loans $500 million Capital $100 million
Total: $600 million $600 million
When there is a deposit of $50 million, the bank would be better off with balance sheet B because it initially has a higher amount of reserves. An outflow of $50 million would reduce the amount of reserves by $50 million since the bank has to maintain certain amount of required reserves held as assets to meet this requirement.
