Answer:
a) $80,000
b) $80,000
c) $762,105
Explanation:
a) Amount deposited = 8 million pennies whichbis equivalent to $80,000.
Since the man made a deposit of $80,000, it means that the transaction deposit has also increased by $80,000.
b) For total reserve:
The required reserve of the bank is 9.5%. In this case, it implies that the bank will keep 9.5% of the $80,000 as required reserve.
Therefore,
Required reserve= 0.095*80,000
= $7,600
The amount the bank will now use as loan or exces reserve wil be $72,400 ($80,000-$7,600).
Then we use the deposit multiplier to find the total reserves.
Deposit multiplier,
D = 1/reserve requirement
D = 1/0.095
D = 10.53
Therefore, total reserve will be:
Required reserve×deposit multiplier
= $7,600 x 10.53
= $80,000
c) Lending capacity:
Deposit multiplier = 10.526
The lending capacity will be
Deposit multiplier * excess reserve
Therefore
Lc = 10.526 * $72,400
= $762,105
