Question

Assets Liabilities Total Reserves $60,000 Demand Deposits $200,000 Loans $140,000 The balance sheet above shows the financial situation for the Carland National Bank. The central bank has set a reserve requirement of 10 percent. What is the maximum amount of additional money Carland National Bank can create

Answer 1

Answer: $40,000

Explanation:

The maximum amount of additional money that Carland National Bank can create will be calculated as the difference between the total reserve and the excess reserve. This will be:

= Total reserve – required reserve

where,

Total reserve = $60,000

Required reserve = 200000 × 10%

= 200,000 × 0.1

= $20,000

Therefore,

Excess reserve = $60000 - $20000

Excess reserve = $40000