A NOW account for a bank has a 2% interest rate, a 2% servicing cost, and reserve requirements of 10%, which of the following is its correct marginal cost?

Name: A NOW account for a bank has a 2% interest rate, a 2% servicing cost, and reserve requirements of 10%, which of the following is its correct marginal cost?
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Question

Quizplus · Accepted Answer

Marginal Cost = {Interest & Noninterest Cost] / (1 - RR) 
Where RR is the fraction reserve requirement 
 Marginal cost % for the NOW Account = 4%/(1 - .10) = 4.44%

A NOW Account for a Bank Has a 2% Interest