If your bank faces a 20 percent required reserve ratio and receives a checkable deposit of $4,000, it can make additional loans worth a maximum of:
A) $800.
B) $3,200.
C) $4,000.
D) $16,000.
E) $20,000.

Question

Quizplus · Accepted Answer

The required reserve ratio is the percentage of the deposit that the bank has to hold in reserve and cannot loan out. In this case, the required reserve ratio is 20 percent, so the bank has to hold 20 percent of $4,000, which is $800.

The bank can loan out the rest of the deposit, which would be $4,000 - $800 = $3,200. Therefore, the maximum additional loans the bank can make is $3,200.

If Your Bank Faces a 20 Percent Required Reserve Ratio