1. You deposit $1,000 in a commercial bank. The bank is required to hold 10% of
ID: 1159477 • Letter: 1
Question
1. You deposit $1,000 in a commercial bank. The bank is required to hold 10% of all deposits on reserve at the regional Federal Reserve Bank. If the bank has no excess reserves prior to the deposit, the amount immediately available for lending is:
Select one:
a. $1,000
b. $900
c. $1,100
d. $100
2. You deposit $1,000 in a commercial bank. The bank is required to hold 10% of all deposits on reserve at the regional Federal Reserve Bank. Your deposit of $1,000 can support the expansion of money supply (multiplier times excess reserves) up to:
Select one:
a. $100
b. $20,000
c. $9,000
d. $1,000
e. $10,000
Explanation / Answer
1.If the bank has no excess reserve it will hold 10% of the deposits and lend the rest.
10% of 1000=100
Bank will lend $900
Answer-B.
2.Money multiplier-1/required reserve ratio
Money multiplier=1/10%=10.
Money in circulation=mutliplier*fund for lending=10*900=$90000
Answer-C
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