Whenever actual reserves exceed desired reserves, the bank
A)can make new loans.
B)will go out of business.
C)needs to call in loans.
D)will borrow funds from another bank.
E)will raise the interest rate on its loans.

Question

Quizplus · Accepted Answer

Actual reserves refer to the amount of money a bank actually holds in reserve, while desired reserves refer to the amount of reserves a bank wants to hold. If actual reserves exceed desired reserves, the bank has excess reserves that it can use to make new loans, earning interest on those loans and potentially increasing its profits. Therefore, the correct answer is A, the bank can make new loans.

Whenever Actual Reserves Exceed Desired Reserves, the Bank