Assume that First Bank has an increase in deposits of $30 million and all bank reserve requirements are 10 percent. First Bank loans out the full amount of the deposit increase that is allowed. This amount winds up deposited in Second Bank. Second Bank lends out the full amount possible as well and this amount winds up deposited in Third Bank. What is the total increase in deposits resulting from these three banks? $82.00 million $81.30 million $78.30 million $77.10 million $70.00 million
Added by Darin R.
Step 1
Since the reserve requirement is 10%, First Bank must keep 10% of the $30 million in reserves. Reserves = 10% of $30 million = 0.10 * $30 million = $3 million. Amount First Bank can lend out = Total deposits - Reserves = $30 million - $3 million = $27 million. Show more…
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