Assume that Bank ABC has a target reserve ratio of 10%.If Bank ABC receives a new deposit of $100 000,the largest new loan this bank could initially make,and maintain its target reserve ratio,is

Question

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The reserve ratio is the fraction of deposits that a bank must hold as reserves. If the target reserve ratio is 10%, then the bank must hold 10% of the new deposit as reserves and can loan out the remaining amount.

Reserves required = 10% of $100,000 = $10,000
Amount available for lending = $100,000 - $10,000 = $90,000

Therefore, the largest new loan the bank could initially make, and maintain its target reserve ratio, is $90,000 (option C).

Assume That Bank ABC Has a Target Reserve Ratio of 10%.If