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 10 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 10 percent,the bank at this point can make no more loans.

Quizplus · Accepted Answer

The required reserve ratio is 10 percent, which means the bank is required to hold 10% of its deposits as reserves. In this case, it has reserves of $1,000, which is equal to 20% of its deposits of $5,000. Therefore, it has excess reserves of $1,000 - $500 = $500, which it can use to make more loans. The maximum amount of new loans it can make is $500/.1 = $5,000. Therefore, the bank can still make $5,000 in new loans before it reaches the required reserve ratio.

Consider the Following T-Account for a Bank If the Required Reserve Ratio Is 10 Percent,the Bank at Assets