Use the following example to answer the questions that follow.
Imagine that you deposit $25,000 in currency (which you had been storing in your closet) five into your checking account at the bank. Assume that this institution has a required reserve ratio of 25%.
-Of this deposit,what is the maximum amount the bank can hold as loans?

Question

Quizplus · Accepted Answer

The bank is required to hold 25% of the deposit as reserves, which is $6,250. Therefore, the maximum amount the bank can hold as loans is $18,750 ($25,000 - $6,250). Option A is incorrect because the bank can lend out a portion of the deposit as long as it holds the required reserves. Option C is incorrect because it assumes that the bank will not lend out any of the deposit, which is not realistic. Option D is incorrect because it exceeds the amount the bank can lend out based on the required reserve ratio. Option E is incorrect because it is not related to the question.

Use the Following Example to Answer the Questions That Follow