Question

2. (15 pt) The banking system has $8,000 in reserve, $22,000 in loans, and $30,000 in...

2. (15 pt) The banking system has $8,000 in reserve, $22,000 in loans, and $30,000 in deposits. If the reserve requirement is 10%.

(a) (5 pt) What is the maximum amount of loans the banking system could make given the amount of $8,000 reserve held at the Fed?

(b) (5 pt) If the Fed lowers reserve requirement to 5%, what is the maximum amount of loans the banking system could make given the amount of $8,000 reserve held at the Fed?

(c) (5 pt) If the Fed increases reserve requirement to 20%, what is the maximum amount of loans the banking system could make given the amount of $8,000 reserve held at the Fed?

Homework Answers

Answer #1

a.

Value of total Deposit = $30,000

Reserve requirement = 10%

value of reserve = $30,000 × 10%

= $3,000

Excess reserve = $8,000 - $3,000

= $5,000

Value of excess reserve is $5,000.

Maximum value of loan company can make = Total deposit - reserve requirement

= $30,000 - $3,000

= $27,000

Maximum value of loan company can make is $27,000.

b.

Value of total Deposit = $30,000

Reserve requirement = 5%

value of reserve = $30,000 × 5%

= $1,500

Maximum value of loan company can make = Total deposit - reserve requirement

= $30,000 - $1,500

= $28,500

Maximum value of loan company can make is $28,500.

c.

Value of total Deposit = $30,000

Reserve requirement = 20%

value of reserve = $30,000 × 20%

= $6,000

Maximum value of loan company can make = Total deposit - reserve requirement

= $30,000 - $6,000

= $24,000

Maximum value of loan company can make is $24,000.

Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The banking system currently has $100 billion of reserves, none of which are excess. People hold...
The banking system currently has $100 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed lowers the reserve requirement to 8 percent and at the same time buys $10 billion worth of bonds, then what is the maximum amount the money supply can change? a. It rises by $300 billion. b. It rises by $125 billion. c. It rises by $375 billion. d. None...
The banking system of Canada has a reserve requirement of 20 percent. It has $80,000 in...
The banking system of Canada has a reserve requirement of 20 percent. It has $80,000 in reserves, $310,000 in loans, $50,000 in property and $110,000 in equity. 1. How much its deposit? 2. How much additional loans to make?
The banking system currently has $100 billion of reserves, none of which are excess. People hold...
The banking system currently has $100 billion of reserves, none of which are excess. People hold only deposits and no currency, and the reserve requirement is 10 percent. If the Fed lowers the reserve requirement to 5 percent and at the same time buys $10 billion worth of bonds, then by how much does the money supply change? It rises by $200 billion. It rises by $800 billion. It rises by $1,200 billion. None of the above is correct.
Suppose the required reserve ratio is 6.5%, the banking system has $1,950 in total reserves, and...
Suppose the required reserve ratio is 6.5%, the banking system has $1,950 in total reserves, and is loaned-up. The deposits in the banking system must be $30,000 $63 $22,500 $127 part2: Which of the following is consistent with expansionary monetary policy? an open market sale of government bonds increasing the discount rate increasing the reserve requirement an open market purchase of government bonds
The banking system has $15 million in reserve, with a required reserve ratio of 25%. people...
The banking system has $15 million in reserve, with a required reserve ratio of 25%. people hold $5 million of currency. If the required reserve ratio decrease to 20%, by how much does money supply change.
We know that the required reserve ratio (rrd) is 10%. Assume that the banking system has...
We know that the required reserve ratio (rrd) is 10%. Assume that the banking system has an excess reserves equal to $ 4 billion. Further, the currency in circulation equals $ 450 billion, and the total amount of checkable deposits equals $900 billion. Based on these numbers, calculate followings, (a) required reserves held by the banking system           (b) total reserves held by the banking system,           (c) monetary base          (d) total money supply (M1) (e) the money multiplier
In a 100% reserve banking system, what is the money multiplier? A. The money multiplier is...
In a 100% reserve banking system, what is the money multiplier? A. The money multiplier is 1, meaning banks do not impact the money supply B. The money multiplier is 1, meaning banks change the money supply C. The money multiplier is 0, meaning banks do not impact the money supply D. The money multiplier is 0, meaning banks change the money supply A bank has $2 million in reserves and $14 million in loans. These are the bank's only...
1. How would a decrease in the reserve requirement affect the (a) size of the money...
1. How would a decrease in the reserve requirement affect the (a) size of the money multiplier, (b) amount of excess reserves in the banking system, and (c) extent to which the system could expand the money supply through the creation of checkable deposits via loans? 2. Suppose that Security Bank has excess reserves of $8,000 and checkable deposits of $150,000. If the reserve ratio is 20 percent, what is the size of the bank’s actual reserves? 3. The Third...
Assume that the banking system is fully loaned up and that any open-market purchase by the...
Assume that the banking system is fully loaned up and that any open-market purchase by the Fed directly increases reserves in the banks. If the required reserve ratio is 0.15.  By how much could the money supply expand if the Fed purchased $1.75 million worth of bonds? Assume that the banking system is fully loaned up and that any open-market purchase by the Fed directly increases reserves in the banks. If the required reserve ratio is 0.15.  What is the initial increase...
If the banking system has $5 million in excess reserves, and the required reserve ratio is...
If the banking system has $5 million in excess reserves, and the required reserve ratio is 25 percent, what is the maximum amount by which the money supply can be increased? a. $5 million b. $2.5 million c. $20 million d. $25 million
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT