Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A...

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves?

Selected Answer:	c. $27,000
Answers:	a. $9,000
	b. $26,190
	c. $27,000

Solutions

Expert Solution

Option C is correct.

When the bank sells off treasury bill to the Fed, it gets money/cash in return. This money completely can be lent out in the form of loans. Total amount that bank can lent out is = $18000 + $9000 = $27000.

Rahul Sunny answered 2 years ago

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