Consider the following T-account for a bank:
$$\begin{array} { | c | c | }
\hline \text { Assets (dollars) } & \text { Liabilities (dollars) } \
\hline \text { Reserves } 1000 & \text { Deposits } 5000 \
\hline \text { Loans } 4000 & \
\hline
\end{array}$$ If the bank's reserve ratio is 20 per cent and the bank is holding no excess reserves,the bank at this point will not make any more loans.

Question

Consider the following T-account for a bank:
 $$\begin{array} { | c | c | } 
\hline \text { Assets (dollars) } & \text { Liabilities (dollars) } \
\hline \text { Reserves } 1000 & \text { Deposits } 5000 \
\hline \text { Loans } 4000 & \
\hline
\end{array}$$ If the bank's reserve ratio is 20 per cent and the bank is holding no excess reserves,the bank at this point will not make any more loans.

Quizplus · Accepted Answer

If the bank is operating at its required reserve ratio (RRR), it cannot make any more loans as it does not have any excess reserves to lend out. 20% RRR means that the bank must hold 20% of its deposits in reserves and cannot lend out that amount. Therefore, if the bank is already holding no excess reserves, it cannot make any more loans.

Consider the Following T-Account for a Bank If the Bank's Reserve Ratio Is 20 Per Cent and c