Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have available to lend out if it decides to hold only required reserves? a. $27,000 b. $26,190 c. $9,000 d. $27,190See answer

Daftar Isi

Suppose the Fed requires banks to hold 9 percent of their deposits as reserves A bank has 18000 of excess reserves and then sells the Fed a Treasury bill for 9000 How much does this bank now have…

Question

Super Answer

Let’s solve this step by step.

Step 1: Understand Initial Conditions

• Required reserve ratio = 9% = 0.09
• Initial excess reserves = $18,000
• Treasury bill sale to Fed = $9,000

Step 2: Calculate Total New Reserves

• Initial excess reserves = $18,000
• Money from T-bill sale = $9,000
• Total new excess reserves = $18,000 + $9,000 = $27,000

Step 3: Calculate Lending Capacity

• When a bank has excess reserves, it can lend out all of these excess reserves
• The bank wants to hold only required reserves
• Therefore, all excess reserves can be lent out
• Amount available to lend = $27,000

Step 4: Verify Answer Choices

• Looking at the options:
  • $27,000 matches option a
  • This represents the total excess reserves available for lending

Final Answer

a. $27,000

The bank can lend out $27,000. This is because:

1. The bank started with $18,000 in excess reserves
2. It received $9,000 from selling the T-bill
3. All of this ($27,000) is excess reserves that can be lent out while still maintaining required reserves