Question

A bank currently has $100,000 in checkable deposits and $15,000 in actual reserves. if the reserve ratio is 20 percent, the bank has ________ in money-creating potential. if the reserve ratio is 14 percent, the bank has __________ in money-creating potential. -$5,000; $1,000. $20,000; $14,000. $5,000; $1,000. $3,000; $2,100.

Answer 1

A bank with $100,000 in checkable deposits and $15,000 in actual reserves has a money-creating potential of -$5,000 at a 20% reserve ratio and $1,000 at a 14% reserve ratio.

Step-by-step explanation:

To calculate a bank's money-creating potential, we must first determine the required reserves and compare it to the actual reserves. The difference will indicate the potential for additional loans (money creation). When the reserve ratio is 20%, the required reserves for $100,000 in checkable deposits would be 20% of $100,000, which is $20,000. Since the bank has actual reserves of $15,000, it has insufficient reserves and thus no money-creating potential; in fact, it is $5,000 short. If the reserve ratio is 14%, the required reserves would be 14% of $100,000, which is $14,000. With $15,000 in actual reserves, the bank exceeds the required amount by $1,000, representing its money-creating potential.

Answer 2

Reserve ratio is the ratio of balance held as cash to the depositors' balances. In other words,

Reserve ratio = Cash held as cash/Dopsits

In the current senario;
Deposits = $100,000
Actual reserve = $15,000

For 20% required reserve ratio,
Reserve required = 20/100*100,000 = $20,000. Therefore money creating potential = Actual reserve-Required reserve = 15000-20000 = -$5,000

For 14% required reserve ration,
Reserve required = 14/100*100000 = $14,000. And money-creating potential = 15,000 - 14,000 = $1,000.

The correct answer is the first option: -$5,000; $1,000