If a bank has $1 million in demand deposits,$400 000 in reserves,and desires a 30 percent reserve ratio,how much money could a bank directly create by loaning out its excess reserves?

Question

Quizplus · Accepted Answer

The bank has $600,000 in excess reserves ($1 million in demand deposits - $400,000 in reserves). With a 30 percent reserve ratio, the bank can create $2 million in new loans ($600,000 / 0.30).

If a Bank Has $1 Million in Demand Deposits,$400 000