The desired reserve ratio is 10 percent.Joe deposits $1,000 in Bank A.Bank A keeps its minimum desired reserves and lends the excess to Fred.Fred spends his loan at J.C.Penney.J.C.Penney deposits the check it receives from Fred in Bank B.Bank B keeps its minimum desired reserves and lends the excess to Mary.How much can Bank B lend to Mary?
A)$900
B)$90
C)$810
D)$100
E)$1,000

Question

Quizplus · Accepted Answer

- Joe deposits $1,000 in Bank A, so Bank A's reserves increase by $1,000 x 10% = $100.
- Bank A lends the excess of $900 to Fred.
- Fred spends his loan at J.C.Penney, and J.C.Penney deposits the check in Bank B.
- Bank B's reserves increase by $900 x 10% = $90.
- Bank B can then lend the excess of $810 to Mary.

The Desired Reserve Ratio Is 10 Percent