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?
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.
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