Refer to the tables below: Step 1: You deposit cash at University Bank. The depo

Question

Refer to the tables below:

Step 1: You deposit cash at University Bank. The deposit creates $100 of reserves, $20 of which are designated as required reserves. This leaves $80 of excess reserves.

Step 2: The bank uses its excess reserves ($80) to make a loan to Campus Radio. Total deposits now equal $180. The money supply has increased.

Step 3: Campus Radio buys an antenna. This depletes Campus Radio's account but increases Atlas's balance. Eternal Savings gets $80 of reserves when the Campus Radio check clears.

Step 4: Eternal Savings lends money to Herman's Hardware. Deposits, loans, and M all increase by $64.

nth step: Some bank lends $1.00

How much unused lending capacity does Eternal Savings have at step 4?

Instructions: Enter your response rounded to two decimal places.

$.........

University Bank Banking System Assets Liabilities Change in Transactions Deposits Change in Money Supply (M) Required reserves $20 Your deposit $100 +$100 $0 Excess reserves 80 Total $100 $100

Explanation / Answer

The lending capacity of Eternal Savings at step 4 = Excess Reserves of External Savings at step 4

= 51.20

As this is the amount which it has available to provide after required reserve.

If not clear why its  51.20, just comment, it can explain in more detail. :)

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