Question

if a bank has total reserves of $100 000 and $1 million in deposits how much money can it lend if the required reserve ration is

Answer 1

Answer and Explanation:

The amount of money in each case is shown below:

a. When the reserve ratio is 5%

Required reserve is

= $1,000,000 × 5%

= $50,000

Now the excess reserves is

= $100,000 - 50,000

= $50,000

b. When the reserve ratio is 10%

Required reserve is

= $1,000,000 × 10%

= $100,000

Now the excess reserves is

= $100,000 - $100,000

= $0