Question

18. In figure 1, the bank in figure 1 can make an additional loan of at most: a. $25,000 d. $200,000 b. $75,000 e. none of the above c. $100,000 19. If people hold no cash, banks hold no excess reserves and the bank in figure 1 is the only bank, the it will expand deposits to: a $100,000 d. $1,000,000 b. $400,000 e. none of the above c. $500,000 20. If people hold no cash, banks hold no excess reserves and the bank in figure 1 is the only bank, the it will eventually hold required reserves of: a. $100,000 d. $1,000,000 b. $400,000 e. none of the above c. $500,000

Answer 1

Sol - The answers is as follows -

Q18 -

Sol - The additional loan that the bank can lend is (b) $75,000 excess reserves

Q-19

Sol - Required Reserve = 25,000/100,000 = 0.25

Money Multiplier = 1/0.25 = 4

New Deposit = 4 * $75,000 = $300,000

Total = $300,000 + $100,000 =$400,000

Option (b)

Q-20

Sol - It will hold eventually required reserve of $100,000 option (a)