A bank has no excess reserves. Then it receives a new deposit for $100,000. If it has a desired reserve ratio of 20 percent, by how much can it increase its loans?

Question

Quizplus · Accepted Answer

If the bank has a desired reserve ratio of 20%, it must keep 20% of the new deposit ($100,000) as required reserves. This equals $20,000. Therefore, the bank can increase its loans by the remaining amount, which is $80,000.

A Bank Has No Excess Reserves