The banking system is loaned up and reserves fall by $100. Given a required reserve ratio of 10 percent, what will happen to deposits?

Question

Quizplus · Accepted Answer

The required reserve ratio is the proportion of deposits that banks must keep in reserve. In this scenario, the reserves have fallen by $100, so the banks must reduce their deposits by $1,000 (10% of $10,000) to maintain the required reserve ratio. Therefore, the correct answer is C - deposits will decrease by $1,000.

The Banking System Is Loaned Up and Reserves Fall by $100