For the following seven questions, use the following bank balance sheet. Values are millions of dollars.

-If $100 in transaction deposits were withdrawn and the bank called the minimum amount of loans to meet the reserve requirement, what is the value of the loans remaining on the balance sheet if there were no other changes?
A) $400
B) $500
C) $520
D) $540

Question

For the following seven questions, use the following bank balance sheet. Values are millions of dollars.
 
-If $100 in transaction deposits were withdrawn and the bank called the minimum amount of loans to meet the reserve requirement, what is the value of the loans remaining on the balance sheet if there were no other changes?
A) $400 
B) $500 
C) $520 
D) $540

Quizplus · Accepted Answer

When $100 in transaction deposits are withdrawn, the bank must maintain a reserve requirement, typically a percentage of deposits. Assuming a 10% reserve requirement (common in many banking systems), the bank needs to keep $10 for every $100 in deposits. If $100 is withdrawn, the bank can reduce its reserves by $10. Originally, the bank could have supported $1,000 in deposits with $100 in reserves (10%). With $100 less in deposits, it now supports $900 in deposits, requiring $90 in reserves. If the bank calls in loans to meet the reserve requirement after the withdrawal, it reduces its loans by the amount withdrawn, $100. Assuming the bank initially lent out the maximum amount possible, which would be $900 (given a 10% reserve requirement on the original $1,000 deposits), and it calls in $100, the remaining loans would be $800. However, without specifying the original amount of loans or the reserve ratio directly, we infer the impact based on typical reserve requirements and the effect of the withdrawal. The correct answer should reflect the remaining loans after adjusting for the withdrawal and maintaining reserve requirements, but given the options provided do not match this explanation, a reevaluation of the premise or additional information might be necessary to accurately select from the given choices.

For the Following Seven Questions, Use the Following Bank Balance