Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the Union Bank has no excess reserves. If a new customer deposits $50,000, the bank could extend new loans up to a maximum of
A) $10,000.
B) $40,000.
C) $50,000.
D) $250,000.

Question

Quizplus · Accepted Answer

Since the reserve requirement is 20 percent, the bank is required to keep 20% of $50,000 = $10,000 as reserves, leaving $40,000 available for new loans.

Suppose All Banks Are Subject to a Uniform Reserve Requirement