If the reserve ratio is 20 per cent and a bank receives a new deposit of $100, then this bank:

Question

Quizplus · Accepted Answer

If the reserve ratio is 20%, then the bank must keep 20% of the deposit as required reserves, and can loan out the remaining 80%. Therefore, the bank must increase its required reserves by $20 (20% of $100), which leaves the bank with $80 in excess reserves. The initial total reserves will increase by $100 (the new deposit), but the bank must set aside $20 as required reserves. This leaves the bank with $80 in excess reserves, which it can use to make a new loan. Thus all of the above choices are correct.

If the Reserve Ratio Is 20 Per Cent and a Bank