Consider the following T-account for a bank:
$\begin{array}{|l|l|}
\hline {\text { Assets }} & {\text { Liabilities }} \
\hline \text { Reserves } \$ 1,000 & \text { Deposits } \$ 5,000 \
\hline \text { Loans } \$ 4,000 & \
\hline
\end{array}$
If the required reserve ratio is 20 percent,the bank at this point can make no more loans.

Question

Consider the following T-account for a bank:
 $\begin{array}{|l|l|}
\hline {\text { Assets }} & {\text { Liabilities }} \
\hline \text { Reserves } \$ 1,000 & \text { Deposits } \$ 5,000 \
\hline \text { Loans } \$ 4,000 & \
\hline
\end{array}$ 
If the required reserve ratio is 20 percent,the bank at this point can make no more loans.

Quizplus · Accepted Answer

The bank must hold 20% of its deposits as reserves, which is $1,000 (20% of $5,000). Since the bank's reserves are exactly $1,000, it cannot make additional loans without falling below the required reserve ratio.

Consider the Following T-Account for a Bank If the Required Reserve Ratio Is 20 Percent,the Bank at Assets