If the reserve requirement is 7 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $300, it
A)must increase required reserves by $42.
B)will initially see reserves decrease by $300.
C)will be able to use this deposit to make new loans amounting to $300.
D)must increase required reserves by $21.

Question

Quizplus · Accepted Answer

The reserve requirement is 7 percent of the new deposit, so the bank must hold 7% of $300 as reserves, which is $21.

If the Reserve Requirement Is 7 Percent, a Bank Desires