In: Economics
A bank receives $1,000 in new checkable deposits. With a required reserve ratio of 10%, how much does this bank set aside as required reserves? How much can this bank at most lend?
Solution:-
(A) Calculate Required Reserve:-
Required Reserves = Reserve requirement * deposit
= 10% * $1000
= $100
(B) How much can this bank at most lend:-
Money Multiplier = 1 / Reserve Requirement
=1/0.1
=10
Bank at most lend = Money Multiplier * Deposit
= 10 * 1000
=10,000