Ask Question
9 September, 01:11

Suppose that initially a bank has excess reserves of $800 and the reserve ratio is 30%. Then Andy deposits $1,000 of cash into his checking account and the bank lends $600 to Molly. That bank can lend an additional:

A) $100.

B) $800.

C) $900.

D) $300

+3
Answers (1)
  1. 9 September, 01:45
    0
    excess reserves after lending = $900

    so correct option is C) $900

    Explanation:

    given data

    reserves = $800

    reserve ratio = 30%

    deposits = $1,000

    bank lends = $600

    to find out

    That bank can lend an additional

    solution

    first we get required reserves from new deposit that is express as

    required reserves = deposit * reserve ratio ... 1

    put here value

    required reserves = $1000 * 30%

    required reserves = $300

    and

    now excess reserves from new deposits will be

    excess reserves = deposits - required reserves ... 2

    put here value

    excess reserves = $1000 - $300

    excess reserves = $700

    and

    total excess reserves will be here

    total excess reserves = old excess reserves + new excess reserves ... 3

    put here value

    total excess reserves = $800 + $700

    total excess reserves = $1500

    so that

    excess reserves after lending is here express as

    excess reserves after lending = excess reserves - amount given to Molly ... 4

    put here value

    excess reserves after lending = $1500 - $600

    excess reserves after lending = $900

    so correct option is C) $900
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Suppose that initially a bank has excess reserves of $800 and the reserve ratio is 30%. Then Andy deposits $1,000 of cash into his checking ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers