Meagan deposits 750 from her piggy bank into her checking ac

Meagan deposits $750 from her piggy bank into her checking account at Regions National Bank. The reserve requirement is 10% and the bank has no excess reserves. What is the immediate effect on the M1 measure of the money supply of her deposit? Explain why. What is the amount of money the local bank can lend? Calculate how much money the entire banking system can create. Show your work. Give two reasons why money creation may not increase by the amount you identified in (c).

Solution

The reserve requirement of the bank means that the bank has to always reserve 10% of the cash as reserves, This is also called cash reserve requirement, This is the norm introduced by fed to almost all banks so that customers can withdraw funds needed.  

The amount local bank can lend is 750-10% which 750-75= 675

The bank can lend upto 675,