Using exhibit 4, if the required reserve ratio is lowered to 5 percent, Mahala Bank will be able to make additional loans worth:

Question

Balance sheet of Mahala bank

Assets

Liabilities

Required reserves

R 1,000,000

Demand deposits

R10,000,000

Excess reserves

0





Loans

R
















R9,000,000


R500,000.


R1,500,000.


R450,000.

Answer 1

To determine how much Mahala Bank can loan out if the required reserve ratio is lowered to 5%, we need to follow these steps:

1. Calculate the total reserves of the bank.
2. Determine the new required reserves at the new required reserve ratio.
3. Identify any excess reserves that can be loaned out.

Given data:

• Demand deposits = R10,000,000
• Current required reserves = R1,000,000

Step 1: Calculate total reserves

The total reserves of the bank = Required reserves + Excess reserves.

Since the excess reserves are currently 0, the total reserves are:

Total reserves = R1,000,000 (required reserves) + R0 (excess reserves) = R1,000,000.

Step 2: Determine the new required reserves

With a required reserve ratio (RRR) lowered to 5%, the required reserves can be calculated as follows:

New Required Reserves = Demand Deposits * Required Reserve Ratio

New Required Reserves = R10,000,000 * 0.05 = R500,000.

Step 3: Identify excess reserves available for loans

To find the available excess reserves for loans, subtract the new required reserves from the total reserves:

Excess Reserves = Total Reserves - New Required Reserves

Excess Reserves = R1,000,000 - R500,000 = R500,000.

Final Result

Thus, with the required reserve ratio lowered to 5%, Mahala Bank will be able to make additional loans worth R500,000.

So the answer is: R500,000.