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Answer the following questions. a. If a bank had reserves of $30,000 and demand deposits of $200,000 (and no other deposits), how much could it lend out if faced a required reserve ratio of b. If the bank then received a new $40,000 deposit in a customer's demand deposit account, how much could it now lend out if it faced a required reserve ratio of Â

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Exploring Economics

8th Edition
Robert L. Sexton
Publisher: SAGE Publications, Inc
ISBN: 9781544336329

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BuyFindarrow_forward

Exploring Economics

8th Edition
Robert L. Sexton
Publisher: SAGE Publications, Inc
ISBN: 9781544336329
Chapter 25, Problem 16P
Textbook Problem
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Answer the following questions.

a. If a bank had reserves of $30,000 and demand deposits of $200,000 (and no other deposits), how much could it lend out if faced a required reserve ratio of

Chapter 25, Problem 16P, Answer the following questions. a. If a bank had reserves of $30,000 and demand deposits of $200,000 , example  1

b. If the bank then received a new $40,000 deposit in a customer's demand deposit account, how much could it now lend out if it faced a required reserve ratio of

 Chapter 25, Problem 16P, Answer the following questions. a. If a bank had reserves of $30,000 and demand deposits of $200,000 , example  2

To determine

(a)

To compute:

The amount of money the bank could lend if a bank had a reserve of $30,000 and demand deposits of $200,000.

Explanation of Solution

Given information:

The bank had reservesof $30,000 and demand deposits of $200,000. The bank reserve ratio is 10%.

Calculation of required reserve:

  Requiredreserve=r×D=0.1×$200,000=$20,000

Calculation of excess reserve:

  Excessreserve=ActualreserveRequiredreserve=$30,000$20,000=$10,000

The assets and liability of the bank should be equal.

Therefore,

  Demanddepoists+Excessreserve=Reserve+Loans$200,000+$10,000=$30,000+LoansLoans=$210,000$30,000=$180,000

Similarly,

The bank had reservesof $30,000 and demand deposits of $200,000. The bank reserve ratio is 15%.

Calculation of required reserve:

  Requiredreserve=r×D=0.15×$200,000=$30,000

Calculation of excess reserve:

  Excessreserve=ActualreserveRequiredreserve=$30,000$30,000=$0

The assets and liability of the bank should be equal

To determine

(b)

To compute:

The additional dollar that can be lent out as a result of $40,000 deposit.

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