Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All ﬁgures are in billions. If the commercial banking system actually loans the maximum
Amount it is able to lend,
A) reserves and deposits equal to that amount will be gained.
B) excess reserves will be $2.6 billion.
C) excess reserves will fall to $1.7 billion.
D) excess reserves will be reduced to zero.

Question

Refer to the accompanying consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 30 percent. All ﬁgures are in billions. If the commercial banking system actually loans the maximum
Amount it is able to lend,
A) reserves and deposits equal to that amount will be gained. 
B) excess reserves will be $2.6 billion. 
C) excess reserves will fall to $1.7 billion. 
D) excess reserves will be reduced to zero.

Quizplus · Accepted Answer

The maximum amount the commercial banking system can lend is determined by the required reserve ratio, which is 30%. This means that they must keep 30% of their deposits as reserves and can loan out the remaining 70%. The excess reserves can be calculated as the difference between the amount of reserves held by the banks and the required reserves. In this case, the required reserves would be 30% of $8.7 billion, which is equal to $2.61 billion. If the commercial banking system lends out the maximum amount it is able to lend, then the excess reserves will be reduced to zero ($5.2 billion - $2.6 billion = $2.6 billion - $0 = $2.6 billion). Therefore, the best choice is D, excess reserves will be reduced to zero.

Refer to the Accompanying Consolidated Balance Sheet for the Commercial