Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 20 percent. How many deposits can Bank A create?
A) zero, because Bank A has no excess reserves
B) $850
C) $200
D) $50

Question

Quizplus · Accepted Answer

Bank A's desired reserves are 20% of $1000, which is $200. Since Bank A holds exactly $200 in reserves, it has no excess reserves to create additional deposits.

Suppose Bank a Holds $200 of Reserves, Has Deposits of $1000