Question

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?
$5,400 billion

$5,100 billion

$270 billion

Answer 1

Answer:

$5,400 billion

Explanation:

The computation of the level of loans would be

We know that

Multiplier = 1 ÷ reserve ratio

               = 1 ÷ 0.05

               = 20

And the required reserve would be

= Currently reserves - excess reserve

= $300 billion - $30 billion

= $270 billion

Now the level of loan would be

= $270 billion × 20

= $5,400 billion