A new bank has reserves of $600,000,checkable deposits of $500,000,and government securities of $100,000.If the desired reserve ratio is 10 percent,the amount of loans this bank can make is
A)$50,000.
B)$60,000.
C)$540,000.
D)$550,000.
E)$600,000.

Question

Quizplus · Accepted Answer

Desired reserve ratio = 10%
Checkable deposits = $500,000
Reserves = $600,000

The required reserves for the bank are 10% of checkable deposits, which is:
0.10 x $500,000 = $50,000

The bank already has reserves of $600,000, which is more than the required reserves. Therefore, the excess reserves are:
$600,000 - $50,000 = $550,000

The maximum amount of loans that this bank can make is equal to the excess reserves, which is $550,000. Therefore, the answer is D) $550,000.

A New Bank Has Reserves of $600,000,checkable Deposits of $500,000,and