Suppose banks desire to hold no excess reserves.If the reserve ratio is 10 percent and a bank receives a new deposit of $10.Then this bank
A)must increase required reserves by $1.
B)will initially see its total reserves increase by $1.
C)will be able to make new loans up to a maximum of $1.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The reserve ratio of 10% means the bank must hold 10% of the deposit as reserves. For a $10 deposit, this is $1, so required reserves increase by $1.

Suppose Banks Desire to Hold No Excess Reserves