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Describe How Actual Reserves Are Calculated and Explain the Difference

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Essay

Describe how actual reserves are calculated and explain the difference between desired reserves and excess reserves. How do reserves affect the amount of loans a bank can make?


Definitions:

Future Value

The value of an investment at a specified date in the future, taking into account factors like compound interest or projected growth.

Time Period

A specific duration or interval of time within which certain activities or events are conducted.

Simple Interest

Interest calculated only on the principal amount, without compounding over time.

Discount Rate

The interest rate charged to commercial banks and other financial institutions for loans received from the Federal Reserve's discount window.

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