Suppose that banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10%.If you deposit $3,000 into First Hawkeye Bank,
A)Hawkeye's required reserves increase by $300.
B)Hawkeye will be able to lend out $2,700.
C)Hawkeye's assets and liabilities will both increase by $3,000.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

- A) Hawkeye's required reserves will increase by 10% of the deposit, which is $300.
- B) Since the reserve requirement is 10%, Hawkeye can lend out 90% of the deposit, which is $2,700.
- C) When you deposit $3,000 into Hawkeye, their assets increase by $3,000 (the deposit), and their liabilities also increase by $3,000 (the amount owed to you). Therefore, both assets and liabilities increase by $3,000.

Suppose That Banks Desire to Hold No Excess Reserves and That