Question

2. Assume Apex Savings Bank received three different deposits, and that the reserve rate was different at the time of each deposit.(6 points: Part I - 2 points; Part II - 2 points; Part III - 2 points)Part I: The first deposit that Apex Savings Bank received was $15,300. If the reserve rate at the time was 3.5%, how much of the deposit was Apex Savings Bank required to keep on reserve? How much was it free to loan out?

Answer 1

The reserve rate is the proportion of deposits that have to be kept in the bank and can not be lent. The reserve will be equal to the reserve rate (in decimals) times the deposits amount.

If the reserve rate is 3.5% and the deposit is $15,300, we can calculate the reserve as:

`\begin{gathered} R=(3.5)/(100)\cdot15300 \\ R=0.035\cdot15300 \\ R=535.50 \end{gathered}`

The rest of the deposit is free to loan out. We can calculate this amount as the difference between the deposit and the reserve:

`\begin{gathered} L=15300-535.50 \\ L=14764.50 \end{gathered}`

Answer:

Reserve: $535.50.

Free to loan out: $14764.50