The Federal Reserve has set a 10% reserve ratio on all deposits.- ABC Spellman Company deposits $100,000 into Itsa Bank-Itsa Bank then loans the maximum allowable amount to Company B Bugle, Inc.-Company B Bulge, Inc. deposits its full loan into That There BankDue to the multiplier effect, what is the maximum amount That There Bank could loan out?
Accepted Solution
A:
Answer: $ 81,000Step-by-step explanation:After ACC Spellman Company deposits its $ 100,000 into Itsa Bank, Itsa will have $ 90,000 as maximum allowable amount to loan to company B Bugle since it has to reserve 10% of the $ 100,000 or $ 10,000. When That There Bank receives the $ 90,000, it can loan out $ 81,000 as a maximum amount and reserve $ 9000 ( 10% of 90,000) .