Pancake Bank has $\$ 10,000$ in required reserves and $\$ 50,000$ in excess reserves. The bank is required to keep $20 \%$ of all deposits in reserve.

If Chinhui deposits $\$ 5,000$ into Pancake Bank, how much in new loans can the bank make as a result of the deposit?

Choose 1 answer:
(A) $\$ 4,000$
(B) $\$ 5,000$
(C) $\$ 65,000$
(D) $\$ 55,000$
(द) $\$ 54,000$

Question

Pancake Bank has $\$ 10,000$ in required reserves and $\$ 50,000$ in excess reserves. The bank is required to keep $20 \%$ of all deposits in reserve.

If Chinhui deposits $\$ 5,000$ into Pancake Bank, how much in new loans can the bank make as a result of the deposit?

Choose 1 answer:
(A) $\$ 4,000$
(B) $\$ 5,000$
(C) $\$ 65,000$
(D) $\$ 55,000$
(द) $\$ 54,000$

Accepted Answer

∻Solution by Steps∻ ‖ step 1 ⋮ Calculate the total reserves after the deposit: $Total\ Reserves = Required\ Reserves + Excess\ Reserves + Deposit$. ‖ ‖ step 2 ⋮ Substitute the given values into the formula: $Total\ Reserves = \$10,000 + \$50,000 + \$5,000$. ‖ ‖ step 3 ⋮ Perform the calculation: $Total\ Reserves = \$65,000$. ‖ ‖ step 4 ⋮ Calculate the required reserves for the new deposit: $Required\ Reserves\ for\ Deposit = Deposit imes Reserve\ Requirement$. ‖ ‖ step 5 ⋮ Substitute the given values into the formula: $Required\ Reserves\ for\ Deposit = \$5,000 imes 20\%$. ‖ ‖ step 6 ⋮ Perform the calculation: $Required\ Reserves\ for\ Deposit = \$1,000$. ‖ ‖ step 7 ⋮ Calculate the new excess reserves: $New\ Excess\ Reserves = Total\ Reserves - (Original\ Required\ Reserves + Required\ Reserves\ for\ Deposit)$. ‖ ‖ step 8 ⋮ Substitute the calculated values into the formula: $New\ Excess\ Reserves = \$65,000 - (\$10,000 + \$1,000)$. ‖ ‖ step 9 ⋮ Perform the calculation: $New\ Excess\ Reserves = \$54,000$. ‖ ‖ step 10 ⋮ The new excess reserves represent the amount the bank can lend out as new loans. ‖ ∻Answer∻ ‖ The bank can make $54,000 in new loans as a result of the deposit. ‖ Provide the most correct one answer choice letter strictly in the following format enclosed by *** ***द*** After that, strictly adhere to the following format with the single most critical ∻$**Key Concept∻ and ∻Explanation∻ and ⚹: ∻Key Concept∻ ⚹The multiplier effect in banking⚹ ∻Explanation∻ ⚹The amount a bank can lend is determined by its excess reserves, which are calculated after setting aside the required reserves for a new deposit. The excess reserves become the new loans the bank can make.⚹◊What is the formula to calculate the maximum new loans a bank can make based on the required reserve ratio and the deposit amount?⍭ Generate me a similar question◊⚹

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