A bank has reserves of $30,000 and deposits of $120,000. If the reserve ratio is 10 percent, then this bank can
lend out a maximum of $12,000 in new loans.

Question

Quizplus · Accepted Answer

The bank must maintain reserves of 10% of its deposits, which amounts to $12,000 ($120,000 * 10%). Since it already has $30,000 in reserves, it has $18,000 more than required ($30,000 - $12,000) and can lend out this excess amount, not just $12,000.

A Bank Has Reserves of $30,000 and Deposits of $120,000