Ask Question
23 May, 23:44

In december 1994 a man in ohio decided to deposit all of the 8 million pennies he'd been saving for nearly 65 years. (his deposit weighed over 48,000 pounds!) with a reserve requirement of 9.5 percent, what will be the cumulative change for the banking system in: instructions: enter your responses rounded to the nearest whole number. in your calculations, round the multiplier to two decimals. (a) transactions deposits? $ (b) total reserves? $ (c) lending capacity? $

+4
Answers (1)
  1. 24 May, 01:49
    0
    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
Know the Answer?
Not Sure About the Answer?
Find an answer to your question ✅ “In december 1994 a man in ohio decided to deposit all of the 8 million pennies he'd been saving for nearly 65 years. (his deposit weighed ...” in 📘 Business if you're in doubt about the correctness of the answers or there's no answer, then try to use the smart search and find answers to the similar questions.
Search for Other Answers