If the reserve ratio is 10 percent and a bank receives a new deposit of $20,what happens to the bank's reserves in the longer term?
A)Reserves increase by $2.
B)Reserves increase by $18.
C)Reserves increase by $20.
D)Reserves increase by $200.

Question

Quizplus · Accepted Answer

The reserve ratio of 10 percent means the bank must keep 10% of the deposit as reserves. Therefore, with a $20 deposit, the bank's reserves increase by $2 (10% of $20).

If the Reserve Ratio Is 10 Percent and a Bank