Assume that U.S. National Bank has no excess reserves and that the reserve ratio is 20 percent. If U.S. National borrows $5 million from a Federal Reserve Bank through a repo transaction, it can expand its loans by a maximum of

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When U.S. National Bank borrows $5 million, it can lend out the entire amount because it is an addition to its reserves. With a reserve ratio of 20%, the bank can expand its loans by the full $5 million borrowed.

Assume That U