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Exhibit: Balance Sheet of the Alpha-Beta Bank

-(Exhibit: Balance Sheet of the Alpha-Beta Bank) If the required reserve ratio is 10%, what is the maximum amount of new loans that Alpha-Beta can create?
A) $25 million
B) $40 million
C) $60 million
D) $75 million

Question

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Exhibit: Balance Sheet of the Alpha-Beta Bank
 
-(Exhibit: Balance Sheet of the Alpha-Beta Bank) If the required reserve ratio is 10%, what is the maximum amount of new loans that Alpha-Beta can create?
A) $25 million 
B) $40 million 
C) $60 million 
D) $75 million

Quizplus · Accepted Answer

The maximum amount of new loans that Alpha-Beta can create is determined by the excess reserves, which is calculated by subtracting the required reserves from the total reserves. The required reserves are 10% of the bank's deposits, which is $100 million * 10% = $10 million. The total reserves are $40 million, thus the excess reserves are $40 million - $10 million = $30 million. The maximum amount of new loans that Alpha-Beta can create is equal to the excess reserves, which is $30 million. Therefore, the correct answer is B) $40 million.

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