Initially a bank has a required reserve ratio of 20 percent and no excess reserves.If $5,000 is deposited into the bank,then initially,ceteris paribus,

Question

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If the required reserve ratio is 20%, the bank must hold $1,000 ($5,000 x 20%) in reserves and can lend out the remaining $4,000 ($5,000 - $1,000) as excess reserves. Therefore, the bank can increase its loans by $4,000.

Initially a Bank Has a Required Reserve Ratio of 20