Suppose a bank has a 10 percent reserve requirement,$4,000 in deposits,and has loaned out all it can given the reserve requirement.

Question

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A 10 percent reserve requirement means that the bank must hold 10 percent of its deposits in reserves. Therefore, the bank has $400 in reserves ($4,000 x 0.10) and it has loaned out the remaining $3,600 ($4,000 - $400) to customers. Option A is incorrect as $40 in reserves would mean a reserve requirement of only 1 percent. Option C is incorrect as the total is not equal to $4,000.

Suppose a Bank Has a 10 Percent Reserve Requirement,$4,000 in Deposits,and