Question

g assume a simplified banking system in which all banks are subject to a uniform reserve requirement of 20 percent and checkable deposits are the only from of money. a bank that received a new checkable deposit of $10,000 would be able to extend new loans up to a maximum of:

Answer 1

$8,000

0.20 × $10,000 = $2,000 required reserve and $8,000 excess reserves for loans.

Banks, similar to some other business, need to monitor their assets and liabilities. T-accounts are tables that banks use to monitor assets and liabilities.

Let's create a T-account for a bank that has just really gotten started, First Bank of Pulitzer.

Banks are something beyond a vault to keep cash in. In the event that banks just acted as a storage facility for cash, that wouldn't be an entirely profitable business. The$ 100 you deposited from your earth shattering sections will be utilized to make credits. Banks profit from making credits by charging interest.

But the new First Bank of Pulitzer has an issue. They want to make credits (since that is the means by which they procure a profit). But sooner or later, they likewise need to take care of the cash that individuals have deposited into the bank. This is where stores come in.

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