Suppose a transaction changes a bank's balance sheet as indicated in the following T-account,and the required reserve ratio is 10 percent. As a result of the transaction,the bank can make a maximum loan of

Question

Suppose a transaction changes a bank's balance sheet as indicated in the following T-account,and the required reserve ratio is 10 percent.  As a result of the transaction,the bank can make a maximum loan of

Quizplus · Accepted Answer

The required reserve ratio is 10%, which means that the bank must keep 10% of all deposits as reserves and can lend out the remaining 90%. In this case, the bank received a deposit of $2,000, so its reserves increased by 10% of $2,000, or $200. This leaves the bank with $1,800 that it can lend out. So the maximum loan the bank can make is $1,800. Therefore, the correct answer is C.

Suppose a Transaction Changes a Bank's Balance Sheet as Indicated