Explanation Given information: Bank A has no excess reserves . It received a new deposit of $ 4 , 000 . Reserve ratio 2 % . Calculation for the maximum amount or excess reserve: ER = Cash Reserve − Required Reserve = $4,000 − $ 80 = $ 3 To determine (b) To compute: The maximum amount by which money supply can be increased.

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ISBN: 9781285859460

Author: BOYES, William

Publisher: Cengage Learning

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Question

Definition Definition Capital reserves held by banks or financial institutions over and above the reserves that are required to be maintained by the regulator toward its liabilities and for internal controls. For commercial banks, excess reserve is the amount over the standard reserve as decided by the central bank. These excess reserve funds are available in the form of cash and cash equivalents.

Chapter 12, Problem 7E

To determine

(a)

To compute:

The maximum loan if the bank maintains a reserve requirement of 2%.

To determine

(b)

To compute:

The maximum amount by which money supply can be increased.

Expert Solution & Answer

Chapter 12 Solutions

Economics:

Ch. 12 - Prob. 1E Ch. 12 - Prob. 2E Ch. 12 - Prob. 3E Ch. 12 - Prob. 4E Ch. 12 - Prob. 5E Ch. 12 - Prob. 6E Ch. 12 - Prob. 7E Ch. 12 - Prob. 8E Ch. 12 - Prob. 9E Ch. 12 - Prob. 10E

Ch. 12 - Prob. 11E Ch. 12 - Prob. 12E Ch. 12 - Prob. 13E

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