The following balance sheet is for the First National Bank.Assume the reserve ratio is 15 percent.
Refer to the above data.This bank can make new loans of up to:

Question

The following balance sheet is for the First National Bank.Assume the reserve ratio is 15 percent. 
Refer to the above data.This bank can make new loans of up to:

Quizplus · Accepted Answer

To calculate the maximum new loans that the bank can make, we need to first calculate the excess reserves, which is the actual reserves minus the required reserves. Required reserves can be found by multiplying the total deposits by the reserve ratio (15% in this case).

Required reserves = 0.15 x $220,000 = $33,000

Actual reserves = $55,000
Excess reserves = $55,000 - $33,000 = $22,000

The maximum new loans that the bank can make is equal to the excess reserves multiplied by the money multiplier. The money multiplier is equal to 1/reserve ratio.

Money multiplier = 1/0.15 = 6.67

Maximum new loans = $22,000 x 6.67 = $146,140

However, we must also take into account any existing loans already made by the bank. From the balance sheet, we can see that existing loans are $114,000.

Therefore, the maximum new loans the bank can make is:

$146,140 - $114,000 = $32,140

Which is closest to answer choice D of $32,000.

The Following Balance Sheet Is for the First National Bank