Withdrawal affects the bank reserves and checkable deposits

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1. Suppose a bank with a 25% reserve requirement has $50 million in reserves and $200 million in checkable deposits, and one of the bank's depositors, a major corporation, writes a check to another corporation for $5 million. The check is deposited in another bank.

a. Explain how the withdrawal affects the bank's reserves and checkable deposits.

b. By how much will the bank have to reduce its lending?

2. Suppose the bank in problem 1 faces a 20% reserve requirement. The customer writes the same check. How will this affect your answers?

Reference no: EM131076645

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