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Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves? |
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Option C is correct.
When the bank sells off treasury bill to the Fed, it gets money/cash in return. This money completely can be lent out in the form of loans. Total amount that bank can lent out is = $18000 + $9000 = $27000.
Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A...