Question

Assets Liabilities Reserves $3000 Deposits $22,000 Loans $20,000 Debt $2000 Securities $5,000 Balance sheet for Fictional First bank Refer to the balance sheet above. Suppose the reserve requirement is 10%. What is the maximum amount that Fictional First can loan out and still meet the reserve requirement?a. $1200 b. $3000 c. $800 d. $2200 e. $0

Answer 1

Answer: $800

Explanation:

If the reserve requirement is 10%, then the maximum amount that Fictional First can loan out and still meet the reserve requirement will be:

Deposits = $22000

Then, the required reserve will be

= 10% × $22000

= 0.1 × $22000

= $2200

Since, the reserves is $3000, then the additional amount that's held as reserves will be:

= $3000 - $2200

= $800.

Therefore, the maximum amount that Fictional First can loan out and still meet the reserve requirement is $800.

Answer 2

The maximum amount that Fictional First can loan out is $800 and still meet the reserve requirement.

How to calculate the maximum loan amount?

The reserve requirement is given as 10% and deposits $22000, the amount required to set aside as reserves would be;

$0.1*22000\\=2200$

Now, with Assets Liabilities Reserves as $3000, the more amount that should be reserved would be;

$3000-2200\\=800$

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