Question

Suppose the banking system currently has $300 billion in reserves, the reserve requirement is 5 percent, and excess reserves are $30 billion. What is the level of loans?

$5,400 billion

$5,100 billion

$270 billion

Answer 1

Answer:

$5,400 billion

Explanation:

The computation of the level of loans would be

We know that

Multiplier = 1 ÷ reserve ratio

               = 1 ÷ 0.05

               = 20

And the required reserve would be

= Currently reserves - excess reserve

= $300 billion - $30 billion

= $270 billion

Now the level of loan would be

= $270 billion × 20

= $5,400 billion

Answer 2

Based on the information given, the level of loan is $5,400 billion.

First step is to determine the multiplier using this formula

Multiplier = 1 ÷ Reserve ratio

Let plug in the formula

Multiplier = 1 ÷ 0.05

Multiplier =20

Second step is to determine the Required reserve using this formula

Required reserve= Currently reserves - excess reserve

Let plug in the formula

Required reserve= $300 billion - $30 billion

Required reserve= $270 billion

Now let calculate the level of loan using this formula

Level of loan=Required reserve× Multiplier

Let plug in the formula

Level of loan= $270 billion × 20

Level of loan= $5,400 billion

Inconclusion the level of loan is $5,400 billion.

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