Suppose that banks desire to hold no excess reserves the reserve ratio is 5 percent and a bank receives a new deposit of $1,000.This bank
A)will increase its required reserves by $50.
B)will initially see its total reserves increase by $1,000.
C)will be able to make a new loan of $950.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

If the reserve ratio is 5%, then the required reserves for the new deposit of $1,000 would be $50. The bank would initially see its total reserves increase by $1,000, but it would need to set aside $50 as required reserves. This would leave the bank with $950 in excess reserves, which it could use to make a new loan. Therefore, all of the options A, B, and C are correct.

Suppose That Banks Desire to Hold No Excess Reserves the Reserve