Question

9. Math A bank is required to maintain a 14 percent reserve require-

ment and has deposits of $54,000.
a. What amount must be kept on reserve, and what amount may
be lent out?
b. If the total amount lent out was deposited in other banks, how
much of those funds would be required to be kept on reserve?

Answer 1

The bank with a 14 percent reserve requirement and $54,000 in deposits must keep $7,560 on reserve and can lend out $46,440. If this amount is deposited in other banks, $6,501.60 would be required to be reserved from those funds.

Step-by-step explanation:

If a bank is required to maintain a 14 percent reserve requirement and has deposits of $54,000, the amount that must be kept as reserves can be calculated by taking 14% of $54,000:

The reserve amount = 0.14 × $54,000 = $7,560.

Therefore, the amount that may be lent out is the total deposits minus the reserve amount:

The amount to be lent out = $54,000 - $7,560 = $46,440.

Part B

If the total amount lent out ($46,440) is deposited in other banks, the calculation for the reserves required for this amount will also be done using the 14 percent reserve requirement:

The reserve amount for the new deposits = 0.14 × $46,440 = $6,501.60.

So, $6,501.60 would be required to be kept on reserve from the funds lent out and subsequently deposited in other banks.