Suppose all banks desire a uniform reserve requirement of 20 percent and the Firsttown Bank has zero excess reserves.If a new customer deposits $10 000,how much in new loans can the bank now extend?

Question

Quizplus · Accepted Answer

The reserve requirement of 20 percent means that the bank must hold $2,000 as reserves ($10,000 x 0.20). Since the bank had zero excess reserves, it must now hold the entire $2,000 as reserves, leaving $8,000 available for new loans. Therefore, the maximum amount of new loans the bank can extend is $8,000.

Suppose All Banks Desire a Uniform Reserve Requirement of 20