Assume the following: a 10 percent required reserve ratio, banks do not hold excess reserves, and the public does not hold cash. Also assume that First Bank just received a checking deposit of $500. What is the maximum amount of new loans First Bank can make?

Question

Quizplus · Accepted Answer

With a 10% reserve ratio, First Bank is required to keep $50 ($500 x 0.10) in reserves and can loan out the remaining $450.

Assume the Following: a 10 Percent Required Reserve Ratio, Banks