Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 20 percent. How many deposits can Bank A create?
A) zero, because Bank A has no unplanned reserves
B) $200
C) $800
D) $400

Question

Quizplus · Accepted Answer

Bank A already holds $200 of reserves against $1000 of deposits, which is exactly a 20% reserve ratio. This means it has no excess reserves to support additional deposits.

Suppose Bank a Holds $200 of Reserves, Has Deposits of $1000