[Related to Solved Problem 13.1] Suppose that Bank of America pays a 3% annual interest rate on checking account balances while having to meet a reserve requirement of 10%. Assume that the Fed pays Bank of America an interest rate of 0.35% on its holdings of reserves and that Bank of America can earn 8% on its loans and other investments. How do reserve requirements affect the amount that Bank of America can earn on $1,000 in checking account deposits? Ignore any costs Bank of America incurs on the deposits other than the interest it pays to depositors. The 10% reserve requirement reduces the amount Bank of America can earn on $1,000 by $ ☐ . (Enter your answer rounded to two decimal places.)
[Related to Solved Problem 13.1] Suppose that Bank of America pays a 3% annual interest rate on checking account balances while having to meet a reserve requirement of 10%. Assume that the Fed pays Bank of America an interest rate of 0.35% on its holdings of reserves and that Bank of America can earn 8% on its loans and other investments. How do reserve requirements affect the amount that Bank of America can earn on $1,000 in checking account deposits? Ignore any costs Bank of America incurs on the deposits other than the interest it pays to depositors. The 10% reserve requirement reduces the amount Bank of America can earn on $1,000 by $ ☐ . (Enter your answer rounded to two decimal places.)
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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