Ask Question
8 December, 01:01

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? $

+1
Answers (1)
  1. 8 December, 01:22
    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 the answers seem to be not correct or there’s no answer. Try a smart search to find answers to similar questions.
Search for Other Answers