Jim deposited $675 cash into his account at the first national bank. if it faces a 3.8 percent reserve requirement, as a result of Jim's deposit, the first national bank will 654.75 $.
When the national bank has to control inflation it reduces the money supply within the economy and increases the interest rates as part of its contractionary monetary policy its effects by controlling inflation and at times speeds up the economy, it does reverse and that is expansionary monetary policy.
Deposit:-675
Reserve requirements:- 3 %
Credit it can give:- 675*97 /100
=654.75 $
Hence worth 654.75 $ additional reserve, it will be required to maintain.
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