The table below shows the balance sheet of Countybank. If the required reserve ratio is 10 percent, this bank alone can now increase its lending by _____.

Question

Quizplus · Accepted Answer

To find out how much a bank can increase its lending, we need to first calculate its excess reserves. Excess reserves = Total reserves - Required reserves.
Total reserves = $10,000 (cash) + $1,000 (deposited with the Fed) = $11,000
Required reserves = 10% of $100,000 (deposits) = $10,000
Excess reserves = $11,000 - $10,000 = $1,000
Since the required reserve ratio is 10%, Countybank can now increase its lending by up to its excess reserves, which is $1,000. Therefore, the correct answer is E) $900.

The Table Below Shows the Balance Sheet of Countybank