A chartered bank has $1 000 000 of outstanding demand deposits and actual reserves of $300 000.If the desired reserve ratio is 20 percent,what is the maximum loan the bank can extend?

Question

Quizplus · Accepted Answer

The desired reserve ratio is 20%, so the bank must hold $200,000 in reserves ($1,000,000 x 0.20). The bank currently has $300,000 in reserves, so it can extend a maximum loan of $100,000 ($300,000 - $200,000).

A Chartered Bank Has $1 000 000 of Outstanding Demand