Purchase Solution

maximum amount of loans the bank can make

Not what you're looking for?

Ask Custom Question

Main Street Bank sets its loans on the basis of a 5% reserve requirement and has $100 million cash in its vaults.
(a) What is the maximum amount of loans the bank can make?
(b) If the bank has made loans of $50 million to real estate firms and is required to keep a 50% reserve requirement against such loans, how does this change your answer?

Purchase this Solution
Solution Summary

The solution advises the maximum amount of loans the bank can make.

Solution Preview

Money Multiplier
Main Street Bank sets its loans on the basis of a 5% reserve requirement and has $100 million cash in its vaults.

(a) What is the maximum amount of loans the bank can make?

if the reserve ratio is ...

Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium

The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.

Economic Issues and Concepts

This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.

Elementary Microeconomics

This quiz reviews the basic concept of supply and demand analysis.

Pricing Strategies

Discussion about various pricing techniques of profit-seeking firms.

Basics of Economics

Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.

View More Free Quizzes
Related BrainMass Solutions

  • Prepare an analysis on the Reserve requirements

    What is the maximum amount of new loans that this bank can make? 2. Assume that the bank makes these loans. What will the new balance sheet look like? 3. By how much has the money supply increased or decreased? 4.

  • maximum amount of new loans

    What is the maximum amount of new loans that this bank can make? Assume that the bank makes these loans. What will the new balance sheet look like? By how much has the money supply increased or decreased? Explain your answers.

  • Bank's T-Account: Required Reserves and New Loans

    With the bank already extending $120,000 in loans, it could extend a maximum of ($250,000 - $120,000 = ) $130,000 in additional loans. >Does the bank currently have any excess reserves? The bank has $120,000 in loans.

  • Mathematics - Finite Mathematics

    The bank earns 10% on commercial loans and 12% on home loans. What amount of money should be allotted for each type of loan to maximize the interest income?

  • Changes in Monetary Policy in Ecoville

    What is the maximum amount of new loans that this bank can make? 2. Assume that the bank makes these loans. What will the new balance sheet look like? 3. By how much has the money supply increased or decreased? 4.

  • Banks and interest rates and capital requirements

    For example if a bank has a capital of 8%, then the maximum amount it can lose is 8%. But because of the high leverage, even if it is able to get an excess return of 2% due to risky investments it can earn 25% extra returns.

  • Money multiplier, credit creation, required reserve ratio

    If the bank lends it's maximum amount of excess reserve, what would be the total amount credit creation in the entire banking system with this initial deposit of $5,000? c.

  • Reserve Requirements and Economic Growth

    What would happen to the banking system? What would you expect to see happen to the cost of a checking account if banks could not make loans? What would happen to the amount of investment made by businesses? Explain.

  • Deposit insurance and bank failure

    What would happen to the banking system? What would you expect to see happen to the cost of a checking account if banks could not make loans? What would happen to the amount of investment made by businesses? Explain.

View More Related Solutions