When a bank receives $100,000 in new deposits,the amount of loans the bank can make is limited by
A)federal law.
B)the annual federal budget.
C)the Treasury Department.
D)its desired reserve ratio.
E)state law,with banks in different states being able to make different amounts of loans.

Question

Quizplus · Accepted Answer

The amount of loans a bank can make is determined by its desired reserve ratio, which is the percentage of deposits that the bank holds in reserve. If a bank's desired reserve ratio is 10%, for example, it must hold $10,000 in reserve for every $100,000 in deposits. This means it can loan out the remaining $90,000. Therefore, the amount of loans a bank can make from new deposits is limited by its desired reserve ratio.

When a Bank Receives $100,000 in New Deposits,the Amount of Loans