Suppose you deposit $1,000 cash in your checking account at a bank. If the bank is loaned up and if the required reserve ratio is 10%, the maximum amount that the bank can lend now, following your deposit is
A) $100.
B) $900.
C) $1,000.
D) $10,000.

Question

Quizplus · Accepted Answer

The required reserve ratio is the percentage of deposits that banks must hold in reserve and cannot lend out. In this case, the required reserve ratio is 10%, so the bank must hold 10% of the $1,000 deposit ($100) in reserve and can lend out the rest. Therefore, the maximum amount the bank can lend is $900.

Suppose You Deposit $1,000 Cash in Your Checking Account at a Bank