Question

Meanie Bank and Trust (MBT) holds $ 1,326,173 in checking account deposits for customers and $ 180,378 in reserves. What is the maximum amount of additional bonds that MBT can purchase at this moment given that the Federal reserve requires 8 % of checking account deposits held in reserves?

Answer 1

Meanie Bank and Trust can use excess reserves of $74,284.16 to purchase additional bonds, given the 8% reserve requirement.

Step-by-step explanation:

To calculate the maximum amount of additional bonds the Meanie Bank and Trust (MBT) can purchase, we must first determine the required reserves.

With the Federal Reserve's requirement that 8% of checking account deposits be held in reserves, we calculate the required reserves as 8% of $1,326,173, which equals $106,093.84.

MBT already holds $180,378 in reserves.

Therefore, it has excess reserves of $180,378 - $106,093.84 = $74,284.16, which could be used to purchase bonds.