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In any case, I salute them both today.A commercial bank is facing the conditions given above. If the reserve requirement is 12 percent and the bank does not sell any of its securities, the maximum amount of additional lending this bank can undertake is:_______.

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Final answer:

The maximum amount of additional lending a commercial bank can undertake with a 12% reserve requirement is determined by the amount of new deposits or excess reserves it has available to lend. For each new deposit, the bank can lend out 88% of that amount after setting aside 12% as required reserves. Without the initial amount available for lending, we cannot calculate a specific value.

Step-by-step explanation:

To calculate the maximum amount of additional lending a commercial bank can undertake given a reserve requirement, we must understand the concept of reserve requirements and how it affects bank lending. The reserve requirement dictates the percentage of a bank's deposits that must be held and not lent out (often either as cash in their vault or on deposit with the central bank). In this scenario, with a reserve requirement of 12%, the bank can lend out 88% of any new deposit it receives.

Let's say the bank receives a new deposit of $100. It must hold 12% of this, which is $12, in reserve. The remaining $88 is available for the bank to lend out. This process of lending creates new deposits when those funds are deposited back into the banking system, which in turn allows for further lending subject to the same reserve requirement, leading to a money multiplier effect.

However, to determine the precise maximum amount of additional lending the bank can undertake, we would need to know the amount of new deposits or excess reserves available to be lent out initially. Without this information, a specific numerical answer cannot be provided.

User Sidewalksalsa
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Answer:

$3,000

Step-by-step explanation:

The reserve requirement for a Bank is the amount of fund that a bank should have available in the hand everyday. It is usually expressed in a percentage of total deposits of the certain bank. The reserve requirements may be different for different countries banks. Usually the central bank determines the reserve requirements percentage for all the banks in a certain country. Here the reserve requirement is 12% which means a Bank can maximize amount of additional lending of $3,000.

User Tom Glenn
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