The highest loan amount that ABC Bank, a commercial bank with a 20% reserve requirement and no surplus reserves, can make is $64,000 following the new $80,000 deposit. People put $80,000 in the bank.
Money held in a bank is referred to as a deposit in the financial industry. When money is transferred to another party for safekeeping, the deposit transaction is known as a deposit. A part of money, however, that is used as security or collateral for the delivery of a good is referred to as a deposit.
There are two distinct definitions of a deposit. In one type of deposit, money is given to someone else to keep safe. By this definition, a Bank deposit is any cash that an investor deposits into a savings or checking account with a bank or credit union.
In this case, the deposited funds remain the property of the individual or organization who made the deposit, and they are always free to take them out again.
a)
Required Reserve ratio =20%
New deposit of $80,000 made hence 20% of 80,000 will go to maintain reserve therefore amount left for lending is (1-0.2)(80000=$64,000
B)
Money Multiplier =1/reserve ratio=1/0.2=5
C)
When Bank makes loan Money supply increases by $64000*5=$320,000
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