Assume the fallowing date describe the condition the bankercy systemTotal reserve 200 billions
Transaction deposit 800 billion
Cash held by public 100 billion
by public
reserve requirmend .20
1)How large is m
2) How large reserve requirement?
3) How large are excess reserves?
4) How much more could be loned ?
Take a shot. What do you think are the answers.
I thank you for you help:)
To answer these questions, we need to use the formulas related to the banking system. Let's go through each question step by step:
1) How large is "m"?
To calculate "m," we need to use the money multiplier formula, which is 1 / reserve requirement.
In this case, the reserve requirement is 0.20 (or 20%, as stated in the question). Therefore, the money multiplier (m) is calculated as 1 / 0.20 = 5.
So, "m" is equal to 5.
2) How large is the reserve requirement?
The reserve requirement is given in the question as 0.20 or 20%. This means that banks are required to hold 20% of their transaction deposits as reserves.
So, the reserve requirement is 0.20 or 20%.
3) How large are excess reserves?
Excess reserves are calculated as the actual reserves minus the required reserves.
Actual reserves = Total reserves = $200 billion (as given)
Required reserves = Reserve requirement * Transaction deposits
= 0.20 * $800 billion
= $160 billion
Excess reserves = Actual reserves - Required reserves
= $200 billion - $160 billion
= $40 billion
Therefore, the excess reserves are $40 billion.
4) How much more could be loaned?
To calculate the amount that could be loaned, we need to subtract the excess reserves from the transaction deposits.
Loanable amount = Transaction deposits - Excess reserves
= $800 billion - $40 billion
= $760 billion
So, $760 billion more could be loaned.
I hope this helps! Let me know if you have any more questions.