Question

Suppose a commercial banking system has $240,000 of outstanding checkable deposits and actual reserves of $85,000. If the reserve ratio is 25%, the banking system can expand the supply of money by a maximum of rev: 06_06_2018 Multiple Choice $75,000. $25,000. $5,000. $100,000.

Answer 1

Answer:

$100,000

Explanation:

Calculation for the maximum Revenue

First step is to find the Required reserve using this formula

Required reserve =Outstanding checkable deposits ×Reserve ratio

let plug in the formula

Required Reserve=$240,000×0.25 =$60,000

Second step is to find the excess reserve using this formula

Excess reserve = Actual reserve - Required reserves

Let plug in the formula

Excess reserve =$85,000- $60,000

Excess reserve =$25,000

Last step is to find the maximum reserve using this formula

Maximum Reserve=Excess reserve× Reserve ratio

Let plug in the formula

Maximum reserve =$25,000*1/.25

Maximum reserve =$25,000*4

Maximum reserve =$100,000

Therefore the maximum reserve will be $100,000