The Federal Reserve Bank

1) A balance sheet should always balance because the value of assets must be equal the amount of claims against those assets. The balance sheet balances because assets equal liabilities plus net worth. The major assets and claims on a balance sheet are the claims of non-owners against the firm's assets called liabilities and the claims against the owners of the firm called net worth.

2) The Federal Reserve Bank requires commercial banks to have reserves because a bank's required reserves are not great enough to meet sudden, massive cash withdrawals. Everyone with checkable deposits appearing at once to demand those deposits in cash would create chaos. The reserves held as vault cash or at the Federal Reserve Bank would be insufficient. Reserves are an asset to commercial banks and a liability to Federal Reserve Bank because the Reserves bank has to pay to pay a customer's demanding their cash, even if they all demand it at the same time. It is an asset to commercial banks because it makes more money available to the bank. Excess reserves are extra cash that a bank deposits into its reserve that exceeds the amount required by the Federal Reserve System. Excess reserves are calculated by subtracting reserves from its actual reserves. The significance of excess reserves is to be able to make loans to consumers using the excess reserves.

3) Yes, I agree because the money deposited into banks is not counted into the money supply or GDP.

4) This means that banks are putting money in circulation when the lend money, thus creating money. When those loans are repaid it takes money out of circulation and into