Answer to Question #83314 in Macroeconomics for Dibrell

Question

If The Fed requires a bank to hold 9 percent of their deposits as reserves and the bank has $18,000 of excess reserves, and then sells the Fed a T bill for $9,000. How much does the bank now have to lend out if it decides to hold on to the required reserves?

$27k? $27,190? $26,190, or $9,000?

Answer 1

If The Fed requires a bank to hold 9 percent of their deposits as reserves and the bank has $18,000 of excess reserves, and then sells the Fed a T bill for $9,000, then the bank now have to lend out 18,000 + 9,000*(1 - 0.09) = 26,190 if it decides to hold on to the required reserves.

So, the correct answer is $26,190.