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required reserves is 25,000. the bank has excess reserves of 75,000, they can loan out everything but the required reserves so assuming they have no loans, they can loan up to 475,000.
government and consumer loans.
[If the Federal Reserve is selling bonds, banks will have lower reserves due to decreased deposits. With the decreased reserves, they will have to decrease the number and size of loans. The decrease in loans and the resulting higher interest rates discourage business (and consumer) borrowing and spending. The decreased spending in the economy should result in decreased business production and employment.]
Banks use excess reserves to make loans to customers so that they can make profits on the interest.
The federal funds rate is the interest rate banks charge on loans in the federal funds market. The federal funds rate is not set administratively by the Fed. Instead, the rate is determined by the supply of reserves relative to the demand for them.
yes
1. Borrowers do something with the money they borrow 2. People do not withdraw cash. 3. Banks do not let reserves sit idle To the extent that people prefer to hold cash, the actual money multiplier will be smaller than the simple money multiplier because cash withdrawals reduce reserves in the banking system. Reduced reserves give banks less ability to make loans or buy bonds.
required reserves is 25,000. the bank has excess reserves of 75,000, they can loan out everything but the required reserves so assuming they have no loans, they can loan up to 475,000.
government and consumer loans.
From day to day, the amount of reserves a bank wants to hold may change as its deposits and transactions change. When a bank needs additional reserves on a short-term basis, it can borrow them from other banks that happen to have more reserves than they need. These loans take place in a private financial market called the federal funds market.
Banks use excess reserves to make loans to customers so that they can make profits on the interest Commercial banks cannot use excess reserves to make common loans. They can only use them to make loans to other banks who may need more required reserves. Excess reserves increase the monetary base but do not enter the M1 or M2 money supply. The only entity that can effect the total excess reserves is the Federal Reserve. When the fed decides to reduce its balance sheet, it will sell assets in the market and reduce an equal amount of excess reserves.
Legal reserves
Unused loan loss reserves represent an overestimation of the bad loans on the books. Ultimately, the unused loan loss reserves would be taken into income
[If the Federal Reserve is selling bonds, banks will have lower reserves due to decreased deposits. With the decreased reserves, they will have to decrease the number and size of loans. The decrease in loans and the resulting higher interest rates discourage business (and consumer) borrowing and spending. The decreased spending in the economy should result in decreased business production and employment.]
reserves is the money that a bank holds aside just in case they run out, they'll have money to back them up.When a bank runs out of reserves they can either get loans from the government or file bankruptcy.
Banks use excess reserves to make loans to customers so that they can make profits on the interest.
DECREASE