This problem illustrates how banks create credit and can thereby lend out more money than has been deposited. Suppose that $100 is deposited in a mid-sized bank. The US Federal Reserve requires that mid-sized banks hold 3% of the money deposited, so they are able to lend out 97% of their deposits.' Thus $97 of the original $100 is loaned out to other customers (to start a business, for example). This $97 becomes someone else's income and, sooner or later, is redeposited in the bank. Thus 97% of $97, or $97(0.97) = $94.09, is loaned out again and eventually redeposited. Of the $94.09, the bank again loans out 97%, and so on. wikipedia.org/wiki/Reserve_requirement, accessed May 14, 2021. (a) Find to 2 decimal places the total amount of money deposited in the bank as a result of these transactions. eTextbook and Media (b) The total amount of money deposited divided by the original deposit is called the credit multiplier. Calculate to 2 decimal places the credit multiplier for this example.
This problem illustrates how banks create credit and can thereby lend out more money than has been deposited. Suppose that $100 is deposited in a mid-sized bank. The US Federal Reserve requires that mid-sized banks hold 3% of the money deposited, so they are able to lend out 97% of their deposits.' Thus $97 of the original $100 is loaned out to other customers (to start a business, for example). This $97 becomes someone else's income and, sooner or later, is redeposited in the bank. Thus 97% of $97, or $97(0.97) = $94.09, is loaned out again and eventually redeposited. Of the $94.09, the bank again loans out 97%, and so on. wikipedia.org/wiki/Reserve_requirement, accessed May 14, 2021. (a) Find to 2 decimal places the total amount of money deposited in the bank as a result of these transactions. eTextbook and Media (b) The total amount of money deposited divided by the original deposit is called the credit multiplier. Calculate to 2 decimal places the credit multiplier for this example.
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
Section: Chapter Questions
Problem 1RQ
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Transcribed Image Text:This problem illustrates how banks create credit and can thereby lend out more money than has been deposited. Suppose
that $100 is deposited in a mid-sized bank. The US Federal Reserve requires that mid-sized banks hold 3% of the money
deposited, so they are able to lend out 97% of their deposits.' Thus $97 of the original $100 is loaned out to other
customers (to start a business, for example). This $97 becomes someone else's income and, sooner or later, is redeposited
in the bank. Thus 97% of $97, or $97(0.97) = $94.09, is loaned out again and eventually redeposited. Of the $94.09, the
bank again loans out 97%, and so on.
wikipedia.org/wiki/Reserve_requirement, accessed May 14, 2021.
(a) Find to 2 decimal places the total amount of money deposited in the bank as a result of these transactions.
i
eTextbook and Media
(b) The total amount of money deposited divided by the original deposit is called the credit multiplier. Calculate to 2
decimal places the credit multiplier for this example.
i
eTextbook and Media
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