Question

In: Economics

Refer to Table 29-5. If the bank faces a reserve requirement of 6 percent, then the bank

8. Refer to Table 29-5. If the bank faces a reserve requirement of 6 percent, then the bank

a. is in a position to make a new loan of $12,000.
b is in a position to make a new loan of $18,000
c. has excess reserves of $12,000.
d. None of the above is correct.

9. Refer to Table 29-5. If the bank faces a reserve requirement of 8 percent, then the bank

a. is in a position to make a new loan of $\$ 14,000$.
b. has fewer reserves than are required.
c. has excess reserves of $\$ 16,400$.
d. None of the above is correct.

10. Refer to Table 29-5. Suppose the bank faces a reserve requirement of 10 percent. Starting from the situation as depicted by the T-account, a customer deposits an additional $\$ 60,000$ into his account at the bank. If the bank takes no other action it will

a. have $\$ 64,000$ in excess reserves.
b. have $\$ 4,000$ in excess reserves.
c. be in a position to make new loans equal to $\$ 6,000$
d. None of the above is correct.

Expert Solution

8.

Reserve requirement = 200,000 * 0.06 = $12,000

Excess reserve = Actual reserve - reserve requirement

= 30,000 - 12,000

= $18,000

Thus, the bank can make a new loan of the excess reserve amount, i.e., $18,000.

9.

Reserve requirement = 200,000 * 0.08 = $16,000

Excess reserve = $30000 - 16,000 = $14,000

Thus, the bank can make a new loan of $14,000.

10.

Now Actual reserve = 30,000 + 60,000 = 90,000

Reserve requirement = (200,000 + 60,000) * 0.10 = 26,000

Excess reserve = 90,000 - 26,000 = 64,000

8. Ans: is in a position to make a new loan of $18,000.

9. Ans: is in a position to make a new loan of $14,000.

10. Ans: have $64,000 in excess reserve.

Dr. OWL answered 3 years ago

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