Ask Question
3 December, 22:29

Assets Liabilities Net Worth Reserves $100,000 Checkable Deposits $300,000 Loans 140,000 Stock Shares 200,000 Securities 60,000 Property 200,000The accompanying balance sheet is for the First Federal Bank. Assume the required reserve ratio is 20 percent. This bank can safely expand its loans by a maximum of Multiple Choice $40,000. $200,000. $20,000. $100,000.

+2
Answers (1)
  1. 4 December, 01:47
    0
    The answer is $200,000

    Explanation:

    Solution

    First step to take is to calculate the money multiplier which is given as:

    = 1 / the reserve ratio required = 1 / 0.20 = 5

    Now,

    Since we know that reserve requirement is 20% of check able deposits. The amount of check able deposits is now $300,000. So reserve requirement will be defined as:

    = 20% of 300,000 = $60000.

    Now excess reserves will be = Reserves held - required reserves = 100000 - 60000 = $40000

    Thus,

    The Expansion in deposits and loans is = excess reserves * money multiplier

    Which is,

    = 40000 x 5 = $200,000
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “Assets Liabilities Net Worth Reserves $100,000 Checkable Deposits $300,000 Loans 140,000 Stock Shares 200,000 Securities 60,000 Property ...” 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