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29 August, 17:51

A single commercial bank must meet a 25% reserve requirement. If it initially has no excess reserves and then $2,000 in cash is deposited in the bank, it can increase its loans by a maximum of

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  1. 29 August, 20:47
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    The bank can increase loans by a maximum of $1500.

    Explanation:

    There is no excess reserve.

    The reserve requirement is 25%.

    The total reserves are increased by $2,000.

    The required reserve will be 25% of $2,000.

    = (25/100) * 2000

    =0.25*2000

    =500

    So, the required reserve is $500.

    The loan can be increased by

    =Increase in total reserve-required reserve

    =$ (2000-500)

    =$1,500

    So, the banks can increase loans up to $1,500.
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