Question

Suppose the reserve requirement is 20 percent. If a bank has checkable deposits of $4 million and actual reserves of $1 million, it can safely lend out A. $1 million. B. $1.2 million. C. $200,000. D. $800,000. 40. Assume Continental National Bank's balance statement is as follows: Assets Liabilities Reserves $40,000 Check. deps $130,000 Loans 25,000 Securities 110,000 Equity Net worth $45,000 Assuming a reserve requirement of 20 percent, how much in excess reserves would this bank have after a check for $10,000 was drawn and cleared against it? A. $3,000 B. $24,000 C. $6,000 D. $16,000

Answer 1

Suppose the reserve requirement is 20 percent. If a bank has checkable deposits of $4 million and actual reserves of $1 million, it can safely lend out  $200,000.

Briefing:-

The much in excess reserves would this bank have after a check for $10,000 was drawn and cleared against it  $6,000.

What does a 20% reserve requirement mean?

A bank must hold $1,000 in reserves if its checkable deposits are $5,000 under a 20% reserve requirement. Assume a bank doesn't have any extra reserves at first. The reserve requirement must be 10% if the bank determines that it may safely lend out $4,500 of the $5,000 in cash it receives from a depositor.

What is the potential of the entire banking sector to create money when the legal reserve ratio is 20 percent?

Commercial banks may boost the money supply by $5,000 if the reserve ratio is 20%. Checkable deposits worth $1,000 are produced if the Fed purchases a $1,000 bond from the general public.

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