Suppose a bank has $10,000 in deposits and $8,000 in loans.It has loaned out all it can.It has a reserve ratio of

Question

Quizplus · Accepted Answer

Reserve ratio refers to the percentage of deposits that a bank is required to hold in reserve and cannot loan out. In this case, the bank has $10,000 in deposits and a reserve ratio of 20 percent means that it must hold 20% of $10,000 or $2,000 as reserves, leaving $8,000 available to lend out as loans. The fact that the bank has already loaned out all it can indicates that it has reached its maximum lending capacity, and therefore it must have a reserve ratio of 20 percent (option C).

Suppose a Bank Has $10,000 in Deposits and $8,000 in Loans.It