Suppose robina bank receives a deposit of $53,589 and the reserve requirement is 5%. answer the following questions using this information. (round your answers to two decimal places.)

1. what is the amount that robina bank must keep on hand as required by the federal reserve (fed)?

2. what is the amount that robina bank will have in excess reserves from this initial deposit?

3. what is the maximum amount of new money created by the banking system from this one deposit?

A)      2,679.45

B)   50,909.55

C) 1,071,780

Explanation:

The bank will keep 5% of the deposit:

53,589 x 5% = 2,679.45‬

Then, it will have in excess the remainder:

53,589 - 2,679.45 = 50,909.55‬

This amount can be used for another.

This makes a hypothetical loop. The borrower can also deposit and creating the chance or another loan and so on. The cycle repeats indefinitely

The maximum amount of new money can be determinate as follow:

53,589 / 0.05 = 1,071,780

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