Suppose the central bank of Questville requires Goldenrod Bank to hold 10% of its deposits as reserves. If Angel deposits $8500 in Goldenrod Bank, what is the maximum amount of their deposit that Goldenrod Bank can lend out?

Suppose the central bank of Questville requires Goldenrod Bank to hold 10% of its deposits as reserves. If Angel deposits $8500 in Goldenrod Bank, what is the maximum amount of their deposit that Goldenrod Bank can lend out?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Suppose Southeast Mutual Bank, Walls Fergo Bank, and PJMorton Bank all have zero excess reserves. The required reserve ratio is presently set at 25%. Paolo, a Southeast Mutual Bank customer, deposits $1,800,000 into his checking account at the local branch. Complete the following table to reflect any changes in Southeast Mutual Bank's T-account (before the bank makes any new loans). Deposits Assets (Dollars) 1,800,000 $1,800,000 ▼ Reserves Liabilities Complete the following table to show the effect of a new deposit on excess and required reserves when the required reserve ratio is 25%. Hint: If the change is negative, be sure to enter the value as negative number. Amount Deposited Change in Excess Reserves Change in Required Reserves (Dollars) (Dollars) Southeast Mutual Bank Walls Fergo Bank PJMorton Bank $450,000 Now, suppose Southeast Mutual Bank loans out all of its new excess reserves to Lucia, who immediately uses the funds to write a check to Kenji. Kenji deposits the funds…
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Assuming that the cash held by the public drops to $5,000,000 with and equal amount becoming excess reserves and the required reserves ratio drops to 12 percent
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