Table 14.2

-Refer to Table 14.2 for the balance sheet of Countybank. If the required reserve ratio is 10 percent, this bank alone can now increase its lending by _____

Question

Table 14.2
 
-Refer to Table 14.2 for the balance sheet of Countybank. If the required reserve ratio is 10 percent, this bank alone can now increase its lending by _____

Quizplus · Accepted Answer

Given a required reserve ratio of 10%, the bank can lend out an amount equal to its excess reserves. The excess reserves are the total reserves minus the required reserves (which is 10% of the deposits). Without the specific numbers from Table 14.2, the general approach is to calculate 10% of the deposits to find the required reserves, subtract this from the total reserves to find the excess reserves, and that amount is what the bank can increase its lending by. The correct answer, E) $900, implies that after setting aside 10% of deposits as required reserves, the bank has $900 in excess reserves available for lending.

Table 14.2 -Refer to Table 14.2 for the Balance Sheet of Countybank