Question

In: Economics

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


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