I do not want to get any pictures I want to copy the answer. There is a one-seve

Question

I do not want to get any pictures I want to copy the answer.

There is a one-seventh (1/7) reserve requirement. If the fed wants to create money they first buy a $1,400,000 bond from a bank (Bank A). Bank A's reserves increase and its holding of bonds decreases. But Bank A does not want unproductive assets so they loan the money to a home buyer. The home buyer pays the builder who deposits the money into an account at Bank B. Bank B uses the new deposits to make an auto loan to a company. They lend the most that they have legally available. How much money did then lend? Show your answer in dollars with no commas and no dollar symbol. For example: if your answer is $1,234 then you should enter "1234") NB: Write down all of this information. You will need it to answer subsequent questions. Be sure to write down your calculations because you will be asked to show your work in the next question.

Explanation / Answer

Reserve requirement = (1/7)

Amount that Bank A got due to selling a bond = 1,400,000

Bank A keep a reserve from the bond selling amount is = (1/7)*1400000=200000

Bank A can loan upto = 1400000-200000= 1200000

Now from the question it is clear that 1200000 amount is given loan to house owner from bank A where that amount is paid to builder .

Now builder deposited that amount of 1200000 in Bank B

Now Bank B should keep a cash reserve from 1200000= (1/7)*1200000= 171428.58

Now Bank can loan upto the amount = 1200000-171428.58 = 1028571.42

So the amount bank B lend to company is = "1028571.42"

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