Asked Dec 15, 2019

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%.



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:


Image Transcriptionclose

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

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...


Image Transcriptionclose

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


Want to see the full answer?

See Solution

Check out a sample Q&A here.

Want to see this answer and more?

Solutions are written by subject experts who are available 24/7. Questions are typically answered within 1 hour.*

See Solution
*Response times may vary by subject and question.
Tagged in




Related Economics Q&A

Find answers to questions asked by student like you
Show more Q&A

Q: 1. If the demand for a good increases at the same time as the supply of the same good decreases, wha...

A: The impact of change in demand and supply is given as follows:


Q: Is rate of retur the same as interest rate?

A: The difference between interest rate and rate of return is mainly based on the nature. Rate of retur...


Q: "You invest $75 immediately for 9 years. The inflation rate is 5.1%. At the end of 9 years, you rece...

A: Market rate:


Q: Which of the following is an example of a company whose barrier to entry is owning all or almost all...

A: The barriers to entry are the restrictions that the economy has which prevents the entry of new firm...


Q: Show how a fall in the matching efficiency technology can effect output, wages, the unemployment and...

A: Matching efficiency is a concept that helps in understanding the concept of turnover in the labor ma...


Q: Hello, I would like help with this assignment. I sent the other day and the number one and two were ...

A: C.To combat the inflationary situation that generated due to the higher aggregate demand (Y>Y*) t...


Q: What is demand-pull inflation?

A: Click to see the answer


Q: List the first ten countries in africa with the lowest policy rates from 2008-2018

A: The key lending rate of the central bank in a country is known as the policy rate. The policy rate u...


Q: The production function for a product is given by q= 10K^(1/2)L^(1/2) where K is capital, and L is l...

A: The production is given as follows-