If a bank had demand deposits of $80 million and it desired a 25 percent reserve ratio,what is the maximum amount of dollars' worth of loans it would be able to have?

Question

Quizplus · Accepted Answer

The reserve ratio is the percentage of a bank's deposits that must be held in reserves, either in cash in the bank's vault or on deposit with the Fed. In this case, the bank desires a 25% reserve ratio, which means 25% of its $80 million in demand deposits must be held in reserves:

25% x $80 million = $20 million

To find the maximum amount of loans the bank can make, we can subtract the required reserves from the total deposits:

$80 million - $20 million = $60 million

Therefore, the maximum amount of dollars' worth of loans the bank can have is $60 million.

If a Bank Had Demand Deposits of $80 Million and It