Suppose the Fed requires banks to hold 9 percent of their deposits as reserves. A bank has $18,000 of excess reserves and then sells the Fed a Treasury bill for $9,000. How much does this bank now have to lend out if it decides to hold only required reserves?

Explanation:

Given:

Fed:

Reserve = 9 % of their deposits

Bank:

Excess reserves = $18,000

Treasury bill sold = $9,000

Treasury bill which is called Tbills are a form of investment issued by banks; it is also a way of loaning money to the government through the central bank.

So $9000 sold as treasury can be viewed as a loan.

Bank reserves are a commercial bank's cash holdings, that are physically held by the bank, and deposits held in the bank's account with the central bank.

Total amount that bank lent out = $18000 + $9000

= $27000

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