Homework Answers
Bank C has sold government bond to the Federal Reserve for $178.
This will increase the reserves at Bank C by $178.
So, after sale of government bonds, Bank C will have reserves of ($580 + $178) $758.
Total deposits at Bank C = $3,450
Required reserve ratio = 11.2% or 0.112
Required reserves to be maintained = Total deposits * Required reserve ratio = $3,450 * 0.112 = $386.4
The Bank C has to maintain the required reserves of $386.4
Calculate excess reserves with Bank C -
Excess reserves = Total reserves with Bank C after sale of government bonds - Required reserves to be maintained = $758 - $386.4 = $371.6
The excess reserves with Bank C after sale of government bonds is $371.6
A bank can make a loan up to the amount of excess reserve it held.
Thus,
After the sale, Bank C can make a new loan of $372.
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