Question
Asked Dec 15, 2019
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Suppose that Second Republic Bank currently has $150,000 in demand deposits and $97,500 in outstanding loans. The Federal Reserve has set the reserve requirement at 10%.

 

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Expert Answer

Step 1

The bank has the demand deposits of $150,000 and the outstanding loan amount of $97,500. It is also said that the required reserves of the bank is 10 percent. Thus, the total reserves of the bank, required reserves of the bank, and excess reserves of the bank, Money multiplier value and the size of the increase in money supply in the economy can be calculated from these details about the bank.

Step 2

The total reserves are the amount that the bank has kept without lending to the public in the form of loans to the public. Thus, it is the difference between the total demand deposits and the total outstanding loans. The total demand deposits are $150,000 and the total outstanding loans are $97,500. Thus, the total reserves can be calculated as follows:

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Total Reserves =Total demand deposits – Total outstanding loans =150,000 – 97,500 = 27,500

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Step 3

The required reserve of the bank is 10 percent. The required reserve is the percent of the demand deposits that the bank has to keep with it without using for loan creation in the...

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Required Reserves=Total demand deposits x Required Reserve Ratio =150,000 × 0.10 =15,000

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