Bilbo receives a $100 payment from the Middle Earth Insurance company located in Gondor (outside the Shire where he lives) for his destroyed ring. He deposits all of the money in the Hobbiton Bank in the Shire.
a) If the reserve rate in the Shire is set at 25%, how much of Bilbo's deposit must the bank keep? What type of reserves are these called?
b) How much can the bank loan out to Sam Gamgee? What type of reserves are these called?