a quetstion about money

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sunbull

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Assume that the required reserve ratio is 15 percetnt. Greencote Bank currently has reseres of 6 million, loans of 24 million, and deposits of 30 million. If Greencote received additional deposits of 2 million,then Greencorte could make:
A. no additiona loans.
B. additional loans of 1.7 milliion.
C. additional loans of 3.2 million.
D.additional loans of 13.3 million.

Which one should choose and why??
 
I would choose 'C'.

Total deposits = 30+2 = 32mn
Required reserves = 32 * 0.15 = 4.8mn

Reserves held currently = 6.0mn
Loans that can be additionally given = 2mn (new deposits) + 1.2mn (withdrawal of excess deposits i.e 6mn - 4.8mn) = 3.2mn

Is this the right answer ???
 
choose C:

1. check show that 6+24=30, no free cash, excess reserve is 1.5
2. 2 M deposit, bank can loan 2*0.85=1.7 out
so altogether is 3.2M loan
 
I think the wording of aarthy's answer is a little off, even if the answer is correct.

If you have 32 deposits, and a .15 requirement, need 4.8 of reserves. They have six before the deposit, eight after which gives them (8-4.8) 3.2 to lend out.
 
caspian,

I meant it the same way as you did (the bank can give away the whole of the new deposits plus the excess from the reserve account as additional loans)....maybe, the expl was not very clear....
 
AAArggghhh. I added deposits and loans together first, not thinking that they are two halves of the same thing.
 
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