A bank receives $1,000 in new checkable deposits. With a required reserve ratio of 10%, how...

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?

Solutions

Expert Solution

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

Rahul Sunny answered 1 year ago

Next > < Previous

Related Solutions

Assume the Fed has established a 10% required reserve ratio for checkable deposits. The Fed does...

Assume the Fed has established a 10% required reserve ratio for checkable deposits. The Fed does not require banks to hold reserves for savings deposits. Further, assume that The First Idaho Bank is a primary dealer, which means that it is able to buy and sell securities directly to the U.S. Federal Reserve (Fed). Remember any bank in the U.S. can borrow from the Fed. Provided below is the balance sheet for The First Bank of Idaho: ASSETS LIABILITES AND...

1) Suppose a bank receives a $1000 deposit. The required reserve ratio is 10%. The bank...

1) Suppose a bank receives a $1000 deposit. The required reserve ratio is 10%. The bank makes an $850 loan and holds $150 in reserves. d. Demonstrate what happens in the market for Federal Funds graphically. Show how the federal funds rate and the quantity of federal funds changes. [10pts]

Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is...

Third National Bank has reserves of $10,000 and checkable deposits of $100,000. The reserve ratio is 10 percent. Households deposit $15,000 in currency into the bank and that currency is added to reserves. What level of excess reserves does the bank now have?

Suppose that a bank has a required reserve ratio (target reserve ratio) of 10%, reserves of...

Suppose that a bank has a required reserve ratio (target reserve ratio) of 10%, reserves of $2.2 billion, loans of $17.8 billion, deposits of $20 billion, and no other liabilities or assets. a. (4 points) What is the amount of loans at equilibrium? b. (4 points) Suppose that the Bank of Canada’s currency issue (legal tender) is $52 billion, private bank deposits at the Bank of Canada are $2 billion, currency in circulation is $36 billion, and the target reserve...

500.00 has been deposited into Bank A. The required reserve ratio is 10%, but Bank A...

500.00 has been deposited into Bank A. The required reserve ratio is 10%, but Bank A also holds 30.00 in excess reserves. Bank A suffered Depreciation of the deposit is 50.00. (a). Indicate what will happen to Bank A's balance sheet as a result of the transaction (b). Indicate what will happen to Bank A's balance sheet as a result of the transaction if the bank does not hold any excess reserves. (c). Explain THREE ways in which banks can...

9. A bank is operating under a required reserve ratio of 10%. If this bank has...

9. A bank is operating under a required reserve ratio of 10%. If this bank has excess reserves of $1,000, it can loan out up to a maximum of: A. $0. B. $1,000. C. $1,100. D. $10,000. E. None of these 10. The money supply will grow faster through deposit creation when the legal reserve requirement is: A. high, and banks hold excess reserves. B. high, and banks cannot find good customers to lend to. C. low, and banks are...

Suppose Leo Messi deposits $3,500 cash in the Humongous National Bank. The required reserve ratio in...

Suppose Leo Messi deposits $3,500 cash in the Humongous National Bank. The required reserve ratio in this economy is 12%. Fill out the blanks in the Humongous National Bank’s T-account to reflect this transaction. Assume that Humongous National did not have any previous deposits. Show your calculations. Answer: Humongous National’s T-account: ASSETS Liabilities TR= D= RR= ER= As a result of Leo Messi’s deposit, what is the maximum amount (in $) that Humongous National can loan out? Answer: ...

1. If the required reserve ratio is 10%, how much a new $10,000 deposit can a...

1. If the required reserve ratio is 10%, how much a new $10,000 deposit can a bank lend? What is the potential impact on the money supply? 2. A bank currently holds $150,000 in excess reserves. If the current reserve requirement is 12.5%, how much could the money supply change? How could this happen? 3. The trading desk at the Federal Reserve sold $100,000,000 in T-bills to the public. If the current reserve requirement is 8.0%, how much could the...

11. If the Bank of Namibia increases the required reserve ratio from 5% to 10%, the...

11. If the Bank of Namibia increases the required reserve ratio from 5% to 10%, the value of the credit multiplier (a) increases from 10 to 20 (b) decreases from 10 to 5 (c) decreases from 20 to 10 (d) increases from 5 to 10 12. Suppose Emerald deposits N$10 000 at Standard Bank. If the reserve requirement is 5%, maximum deposit expansion for the commercial banking system is: (a) N$200 000 (b) N$205 000 (c) N$150 000 (d) N$100...

Assume the required reserve ratio at The First Bank of Idaho is 10%. The First Idaho...

Assume the required reserve ratio at The First Bank of Idaho is 10%. The First Idaho Bank is a primary dealer, which means that it is a financial institution that is able to buy and sell securities directly to the U.S. Federal Reserve (Fed). Remember any bank in the U.S. can borrow from the Fed. Provided below is the balance sheet for The First Bank of Idaho: Type of Asset Asset Amount Type of Liability Bank Capital Reserves $50,000 Checkable...

Subjects