Table 9-5
Bolton Bank: Partial Balance Sheet
(All figures in $ million)

-Refer to Table 9-5. The required reserve ratio is 10%. What is the maximum amount of new loans that Bolton bank can create and by how much can Bolton initially increase the money supply, assuming that newly created deposits are transferred to another bank?
A) $30 million; $30 million
B) $70 million; $30 million
C) $70 million; $70 million
D) $70 million; $700 million

Question

Table 9-5
Bolton Bank: Partial Balance Sheet
(All figures in $ million)
 
-Refer to Table 9-5. The required reserve ratio is 10%. What is the maximum amount of new loans that Bolton bank can create and by how much can Bolton initially increase the money supply, assuming that newly created deposits are transferred to another bank?
A) $30 million; $30 million 
B) $70 million; $30 million 
C) $70 million; $70 million 
D) $70 million; $700 million

Quizplus · Accepted Answer

The required reserve ratio is 10%, so Bolton Bank can create new loans of up to $70 million (10% of $700 million). If these newly created deposits are transferred to another bank, then Bolton Bank's initial increase in the money supply will be $70 million.

Table 9-5 Bolton Bank: Partial Balance Sheet