The amount of loans that a bank can create is limited by
A)a law enacted by Congress.
B)the bank's excess reserves.
C)a directive from the Federal Reserve System,which takes into account the bank's financial stability.
D)the real interest rate.
E)the bank's government securities.

Question

Quizplus · Accepted Answer

The amount of loans that a bank can create is limited by its excess reserves. Banks can only lend out a certain portion of the deposits they hold, and the amount they can lend is dependent on the amount of reserves they have on hand. Reserves are typically held in the form of deposits at the Federal Reserve, and the amount a bank can lend is limited by the level of excess reserves it has available.

The Amount of Loans That a Bank Can Create Is