Assume a new bank has just opened for business. It has deposits of $1,000,000 and a required reserve ratio of 15 percent. How much can this bank lend, and why?
What will be an ideal response?
This bank is required to hold 15 percent of deposits on reserve. In this case the amount of required reserves is $150,000. Total reserves equal to $1,000,000 minus required reserves give the bank $850,000 of excess reserves. The bank can lend all of its excess reserves or $850,000.
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Business cycles all display the following characteristics except
A) a period of expansion followed by one of contraction. B) comovement of many economic variables. C) rising prices during an expansion and falling prices during the contraction. D) they last a period of one to twelve years.