Assume that Bank ABC has a target reserve ratio of 10 percent. If Bank ABC receives a new deposit of $100 000, the largest new loan this bank could initially make, and maintain its target reserve ratio, is

Question

Quizplus · Accepted Answer

If the target reserve ratio is 10%, then Bank ABC must hold $10 000 of the $100 000 deposit in reserve. Therefore, the largest loan it could initially make is $90 000 ($100 000 - $10 000).

Assume That Bank ABC Has a Target Reserve Ratio of 10