Question

In: Economics

suppose the central bank of boxtown requires victorian bank to hold 15% of its deposits as...

suppose the central bank of boxtown requires victorian bank to hold 15% of its deposits as reserves. if kevin deposits 7500 in victorian bank, what is the maximum amount of their deposit that victorian bank can lend

Solutions

Expert Solution

The maximum amount of their deposit that Victorian bank can lend = 6,375


Explanation:

Step 1:

Calculate the amount the bank will keep as required reserves:

Amount the bank will keep = Required reserves x deposit amount

                                                = 15% x 7,500

                                                = 1,125

Step 2:

Calculate the maximum amount of the deposit the bank can lend:

Maximum amount the bank can lend = Deposit amount - Amount the bank will keep as required reserves

                                                                  = 7,500 - 1,125

                                                                  = 6,375

Rahul Sunny answered 2 years ago
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