Question

Suppose that initially a bank has excess reserves of $800 and the reserve ratio is 30%. Then Andy deposits $1,000 of cash into his checking account and the bank lends $600 to Molly. That bank can lend an additional: A) $100. B) $800. C) $900. D) $300

Answer 1

Answer

required reserves from new deposit =depsoit * reserve ratio

=1000*0.3

=$300

excess reserves from new deposits =deposits - required reserves

=1000-300

=$700

total excess reserves =old excess reserves +new excess reserves

=800+700

=$1500

excess reserves after lending to Molly=excess reserves -amount given to Molly

=1500-600

=900

the bank can lend remaining excess reserves which is $900

option C