Question

assume the required reserve ratio is 6%, the amount of deposits in a bank are $1,181, and the bank is holding $607 in reserves. what is the maximum amount of additional loans this bank can make? please round to two decimal places and do not include the dollar sign. for example, if your answer is $5678.977 you would enter 5678.98.

Answer 1

$1181 in deposits, 6% locked in reserves, leaves $536.14 to loan. Max lending, green light - go!

Here's how to calculate the maximum amount of additional loans the bank can make:

Calculate the required reserves: Multiply the deposits by the required reserve ratio: $1,181 deposits * 0.06 reserve ratio = $70.86.

Calculate the excess reserves: Subtract the required reserves from the existing reserves: $607 existing reserves - $70.86 required reserves = $536.14.

Therefore, the maximum amount of additional loans the bank can make is 536.14. Rounded to two decimal places, this is 536.14.

Remember, this is the maximum amount, and the bank may choose to lend less than this depending on other factors such as creditworthiness of potential borrowers and desired capital reserves.