Suppose a commerical bank is subject to a 11 percent reserve requirement. The bank currently has...
Suppose a commerical bank is subject to a 11 percent reserve requirement. The bank currently has $78,000 in checkable deposits and $14,000 in outstanding loans.
What is the whole dollar amount of additional loans the bank may loan out. (If the bank is short on reserves enter your number as a negative number).
Homework Answers
Checkable deposits with bank = $78,000
Oustanding loans = $14,000
Calculate the total reserves with bank -
Total reserves = Checkable deposits with bank - Oustanding loans
Total reserves = $78,000 - $14,000
Total reserves = $64,000
The total reserves with bank is $64,000.
Checkable deposits with bank = $78,000
Reserve requirement = 11%
Required reserves = Checkable deposits with bank * Reserve requirement
Required reserves = $78,000 * 0.11 = $8,580
Excess reserves with bank = Total Reserves - Required reserves
Excess reserves with bank = $64,000 - $8,580 = $55,420
A bank can lend an amount equal to the excess reserves it held.
Thus,
The whole dollar amount of additional loans the bank may loan out is $55,420.
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