In December 1994 a man in Ohio decided to deposit all of the 8 million pennies h
ID: 1102499 • Letter: I
Question
In December 1994 a man in Ohio decided to deposit all of the 8 million pennies he’d been saving for nearly 65 years. (His deposit weighed over 48,000 pounds!) With a reserve requirement of 8 percent, what will be the cumulative change for the banking system in:
Instructions: Enter your responses rounded to the nearest whole number. In your calculations, round the multiplier to two decimals.
(a) Transactions deposits?
$ 80,000 ( WAS INCORRECT)
(b) Total reserves?
$ 80,000 (CORRECT)
(c) Lending capacity?
$
Explanation / Answer
ANSWER:
A) TRANSACTION DEPOSIT = $80,000 * ( 1 / .08) = $1,000,000
WHERE 80,000 IS THE DEPOSIT AND THE 1/.08 IS THE MONEY MULTIPLIER.
B) TOTAL RESERVES WILL BE $80,000 THAT IS DEPOSIT MADE.
C) LENDING CAPACITY = TRANSACTION DEPOSIT - TOTAL RESERVES = $1,000,000 - $80,000 = $920,000