Question

if bank of mateer has a required reserve ratio of 40 percent and there is $100,000 in deposits, what is the maximum amount of money it can loan?

Answer 1

The maximum amount of money Bank of Mateer can loan, given a required reserve ratio of 40 percent and $100,000 in deposits, is $60,000.

Step-by-step explanation:

Banks are required to hold a certain percentage of their deposits as reserves, and the rest can be loaned out. The required reserve ratio is expressed as a percentage. In this case, with a required reserve ratio of 40 percent and $100,000 in deposits, the bank must keep 40% of $100,000 as reserves. The calculation for the required reserves (RR) is:

`\[ RR = $100,000 * 0.40 \]`

`\[ RR = $40,000 \]`

The maximum amount that can be loaned out, also known as excess reserves (ER), is the difference between the total deposits and the required reserves:

`\[ ER = $100,000 - $40,000 \]`

`\[ ER = $60,000 \]`

Therefore, Bank of Mateer can loan a maximum of $60,000 while still meeting the required reserve ratio of 40 percent.

Understanding these calculations is crucial for banks to effectively manage their liquidity, ensuring they have enough reserves to meet withdrawal demands while also facilitating economic growth through loans to individuals and businesses.