A bank currently has checkable deposits of $100,000, total reserves of $30,000, and loans of $70,000. If the required reserve ratio is lowered from 20 percent to 15 percent, this bank can increase its loans by:
A) $10,000.
B) $15,000.
C) $75,000.
D) $5,000.

Question

Quizplus · Accepted Answer

Currently, the bank is holding $20,000 (20% of $100,000) in required reserves, leaving them with $10,000 in excess reserves.
If the reserve ratio is lowered to 15%, the new required reserves would be $15,000 (15% of $100,000). The bank already has $30,000 in reserves, so they can decrease their reserves by $5,000 to meet the new requirement.
This leaves them with $15,000 in required reserves and $15,000 in excess reserves ($30,000 total reserves - $15,000 required reserves = $15,000 excess reserves).
Since the bank can now hold more excess reserves, they can increase their loans by the amount of the excess reserves, which is $15,000.
Therefore, the correct answer is B) $15,000.

A Bank Currently Has Checkable Deposits of $100,000, Total Reserves