Bank A has checkable deposits of $100 million, vault cash equaling $1 million and deposits at the Fed equaling $14 million. If the required reserve rate is ten percent what is the maximum amount Bank A could lend?

Question

Quizplus · Accepted Answer

Bank A needs to hold 10% of $100 million as reserves, which is $10 million. With $1 million in vault cash and $14 million at the Fed, Bank A has $15 million in reserves. Therefore, it can lend out $15 million - $10 million = $5 million.

Bank a Has Checkable Deposits of $100 Million, Vault Cash