Suppose a bank already has excess reserves of $800 and the reserve ratio is 30%. If Andy deposits $1,000 of cash into his checking account and the bank lends $600 to Melanie, that bank can lend an additional:

$900

Explanation:

Given that,

Excess reserves = $800

Reserve ratio = 30%

Total deposits into checking account = $1,000

Lends to Melanie = $600

Required reserves = 30% of Total deposits

                               = 0.3 × $1,000

                               = $300

Total excess reserves:

= Old excess reserves + New excess reserves

= $800 + $700

= $1,500

Total excess reserves after lending to Melanie:

= $1,500 - $600

= $900

Therefore, bank can lend an additional amount of $900.

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