Suppose the Fed requires banks to hold 9 percent of their deposits as reserves.A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000.How much does this bank now have to lend out if it decides to hold only required reserves?
A)$27,000
B)$27,190
C)$26,190
D)$9,000

Question

Quizplus · Accepted Answer

The bank initially has $18,000 in excess reserves. After selling the Treasury bill for $9,000, it receives $9,000 in cash, increasing its reserves by $9,000. The total reserves are now $27,000. Since the reserve requirement is 9%, the bank must hold 9% of its deposits as reserves. Therefore, the bank can lend out the remaining amount, which is $27,000.

Suppose the Fed Requires Banks to Hold 9 Percent of Their