Question 202 pts

Scenario 3 Consider an economy with constant population N=100 with each young person wishing to deposit 200 goods every period no matter the return. The economy has a total endowment of 8,000 goods in each period and there is no capital held outside of banks. Bank deposits are also the only form of money. Deposits at banks are subject to 10 percent reserve requirement and one-period net real rate of return on capital is 20% per period. After meeting the reserve requirement banks invest the reminder of all deposits into capital. Monetary base is $200 in every period.

Refer to Scenario 3. Now suppose the central bank allows banks to borrow up to 40% of required reserves and charges a net interest rate of 2%. What is the net real rate of return on deposits offered by competitive banks?

Group of answer choices

18%

19.02%

21.22%

18.72%