If the reserve rate is 7% and a bank receives a deposit of [tex]$9000, how much of the $[/tex]9000 is the bank free to lend?



Answer :

Sure, let's solve this step-by-step:

1. Understand the Reserve Rate: The reserve rate, also known as the reserve requirement, is the percentage of deposits that a bank must hold in reserve and cannot lend out. In this case, the reserve rate is 7%.

2. Calculate the Reserve Amount: To know how much money the bank must keep in reserve, you multiply the deposit amount by the reserve rate.

- Deposit amount = [tex]$9000 - Reserve rate = 7% or 0.07 The reserve amount is calculated as: \[ \text{Reserve Amount} = \$[/tex]9000 \times 0.07 = \[tex]$630 \] 3. Determine the Amount Free to Lend: The bank is free to lend out the remaining part of the deposit after keeping the reserve amount. To find this, you subtract the reserve amount from the total deposit. \[ \text{Amount Free to Lend} = \$[/tex]9000 - \[tex]$630 = \$[/tex]8370
\]

So, the bank is free to lend [tex]\( \$8370 \)[/tex] out of the [tex]\( \$9000 \)[/tex] deposit.