Refer to the information provided in Table 25.4 below to answer the question(s) that follow.
Table 25.4
-Refer to Table 25.4. First Charter Bank could make additional, first round loans of $400,000 if the required reserve ratio were

Question

Refer to the information provided in Table 25.4 below to answer the question(s) that follow.
Table 25.4 
-Refer to Table 25.4. First Charter Bank could make additional, first round loans of $400,000 if the required reserve ratio were

Quizplus · Accepted Answer

The required reserve ratio is the percentage of deposits that banks are required to hold in reserve. First Charter Bank has $4 million in deposits and a required reserve ratio of 10%, which means they must hold $400,000 in reserve. Currently, they have $3.2 million in loans, leaving $400,000 in excess reserves available. Therefore, if the required reserve ratio were to remain at 10%, First Charter Bank could make additional, first round loans of $400,000. If the required reserve ratio were to increase to 12%, they would need to hold an additional $80,000 in reserves, leaving only $320,000 in excess reserves and reducing the amount of first round loans they could make. Conversely, if the required reserve ratio were to decrease to 8%, they would only need to hold $320,000 in reserves, leaving $480,000 in excess reserves and increasing the amount of first round loans they could make. Therefore, B is the best choice.

Refer to the Information Provided in Table 25