Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. How many dollars' worth of loans can the banking system create?

Name: Sumit deposits $1,500 cash into his checking account. The reserve requirement is 25%. How many dollars' worth of loans can the banking system create?
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Question

Quizplus · Accepted Answer

The banking system can create $4,500 worth of loans because the reserve requirement is 25%, which means that the bank must hold 25% of the deposit as reserves and can lend out the remaining 75%.

Sumit Deposits $1,500 Cash into His Checking Account