A single chartered bank has a desired reserve ratio of 25 percent.If the bank has no excess reserves initially and $5,000 cash is deposited in the bank, it can increase its loans by a maximum of:
A)$1,250
B)$120,000
C)$5,000
D)$3,750

Question

Quizplus · Accepted Answer

The bank must keep 25% of the $5,000 deposit as reserves, which is $1,250. The remaining $3,750 can be loaned out, as it is the excess reserve.

A Single Chartered Bank Has a Desired Reserve Ratio of 25