Suppose a bank has a desired reserve requirement ratio of 12 percent. If someone deposits $1,000 in the bank,
A) the bank can make loans of $1,000.
B) immediately after the deposit, excess reserves increase by $880.
C) the bank's desired reserves rise by $1,000.
D) Both answers B and C are correct.

Question

Quizplus · Accepted Answer

The bank must keep 12% of the $1,000 deposit as reserves, which is $120. Therefore, the excess reserves increase by $880 ($1,000 - $120).

Suppose a Bank Has a Desired Reserve Requirement Ratio of 12