Suppose a bank has $100 million in chequing account deposits with no excess reserves and the desired reserve ratio is 10 percent.If commercial banks reduce the desired reserve ratio to 4 percent, then the bank can make a maximum loan of

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The bank initially holds $10 million in reserves (10% of $100 million). If the reserve ratio is reduced to 4%, the required reserves become $4 million (4% of $100 million). The bank can now loan out the difference, which is $6 million ($10 million - $4 million).

Suppose a Bank Has $100 Million in Chequing Account Deposits