Northern Bank: Balance Sheet
Assets Liabilities
Reserves $800 Deposits $10 000
Loans $11 200 Capital $2000
$12 000 $12 000
TABLE 26-6
-Refer to Table 26-6.Assume that Northern Bank's target reserve ratio is 10%.In order to achieve its target reserve ratio,Northern Bank must ________ and ________.

Question

Quizplus · Accepted Answer

To achieve a 10% reserve ratio, Northern Bank needs reserves of $1,000 (10% of $10,000 deposits). It currently has $800, so it needs to increase reserves by $200. To maintain balance, it can decrease loans by $200.