Scenario 11-1
A bank's assets consist of $500 000 in total reserves, $1 600 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $2 000 000 in demand deposits and $1 300 000 in capital.
-Refer to Scenario 11-1.If the desired reserve ratio is 10 percent,what is the level of the bank's excess reserves and how much could it loan out as a result?

Question

Quizplus · Accepted Answer

The required reserves for this bank would be 10% of its total deposits, which is $200,000 ($2,000,000 x 0.10). The bank's total reserves are already equal to its required reserves, meaning that there are no excess reserves. Therefore, the maximum amount it could loan out would be equal to its total reserves of $500,000, minus the required reserves of $200,000, which equals $300,000. Therefore, the correct answer is C.

Scenario 11-1 A Bank's Assets Consist of $500 000 in Total Reserves