(a)
To compute:
The
Answer to Problem 13P
The
Explanation of Solution
The required reserve created by $100,000 if the bank faces the requirement of reserve ratio of 10%:
The required reserve created by$100,000if the bank faces the requirement of reserve ratio of 20%:
The required reserve created by$100,000 if the bank faces the requirement of reserve ratio of 25%:
The required reserve created by$100,000 if the bank faces the requirement of reserve ratio of 50%:
Required reserve:
It refers to a certain amount of cash from the deposits that banks need to keep according to the guidelines of central bank.
Required reserve is calculated by,
Here, RR is required reserve, r is percentage of required reserve and D is the total amount in
deposits.
Excess reserve:
The holding of reserves in excess by the banks or financial institutions than what is required by the regulators, creditors or internal controls is termed as excess reserve or capital reserve.
Money multiplier:
It calculates the potential amount of money a bank generates with each dollar of reserves.
Where, R is required reserve.
(b)
To compute:
The additional dollar that can be lent out as a result of $100,000 deposit for the given reserve requirements.
Answer to Problem 13P
The additional dollar that can be lent out as a result of $100,000 deposit if the bank faces the given reserve requirements is as shown below:
Explanation of Solution
If the initial deposit is
Calculation for excess reserve:
If the initial deposit is
Calculation for excess reserve:
If the initial deposit is
Calculation for excess reserve:
If the initial deposit is
Calculation for excess reserve:
Working note:
The required reserve created by
The required reserve created by
The required reserve created by
The required reserve created by
Required reserve:
It refers to a certain amount of cash from the deposits that banks need to keep according to the guidelines of central bank.
Required reserve is calculated by,
Here, RR is required reserve, r is percentage of required reserve and D is the total amount in
deposits.
Excess reserve:
The holding of reserves in excess by the banks or financial institutions than what is required by the regulators, creditors or internal controls is termed as excess reserve or capital reserve.
Money multiplier:
It calculates the potential amount of money a bank generates with each dollar of reserves.
Where, R is required reserve.
(c)
To compute:
The additional dollar that can be created by bank in response of a $100,000 deposit for the given reserve requirements.
Answer to Problem 13P
The additional dollar that can be created as a result of
Explanation of Solution
Potential money can be calculated for reserve ratio of
Potential money can be calculated for reserve ratio of
Potential money can be calculated for reserve ratio of
Potential money can be calculated for reserve ratio of
Working note:
Calculation of money multiplier for reserve ratio of 10%:
Calculation of money multiplier for reserve ratio of 20%:
Calculation of money multiplier for reserve ratio of 25%:
Calculation of money multiplier for reserve ratio of 50%:
Required reserve:
It refers to a certain amount of cash from the deposits that banks need to keep according to the guidelines of central bank.
Required reserve is calculated by,
Here, RR is required reserve, r is percentage of required reserve and D is the total amount in
deposits.
Excess reserve:
The holding of reserves in excess by the banks or financial institutions than what is required by the regulators, creditors or internal controls is termed as excess reserve or capital reserve.
Money multiplier:
It calculates the potential amount of money a bank generates with each dollar of reserves.
Where, R is required reserve.
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