Final answer:
Historically, banks had tiered reserve requirements that would require them to hold a certain percentage of deposits as reserves, varying with the amount deposited. Using a 20% reserve requirement, $800 of a $4000 deposit would have been held in reserve, with the remainder available for lending. Today, the Federal Reserve has reduced the requirement to 0%, allowing banks to lend out the entire $4000 deposit.
Step-by-step explanation:
The question concerns the reserve requirement policy of the Federal Reserve, which dictates the percentage of deposits banks must keep in reserve. Historically, the reserve requirement was used as a tool for monetary policy. According to the Federal Reserve's requirements prior to March 2020, banks had to hold different reserve percentages for different tiers of deposits: 0% for the first $14.5 million, then 3% for deposits up to $103.6 million, and 10% for deposits above that threshold. However, due to the pandemic-induced recession, the requirement was reduced to 0%, thus eliminating the reserve requirement for all depository institutions.
When Janice deposits $4000 into her checking account, the bank would have historically been required to keep a percentage in reserve. Considering the historical 20% reserve requirement presented in the original question, the bank would then reserve $800 ($4000 x 0.20) while the remaining $3200 ($4000 - $800) would be available for lending. However, since the reserve requirement has been reduced to 0%, the bank would now be able to lend out the entire $4000.