Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 10 percent. If you deposit $9,000 into First Jayhawk Bank,
A)First Jayhawk's required reserves increase by $900.
B)First Jayhawk will be able to lend out $8,100.
C)First Jayhawk's assets and liabilities both will increase by $9,000.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

When the customer deposits $9,000 into First Jayhawk Bank, the bank's required reserves increase by 10% of the deposit amount, which is $900. This means that the bank cannot lend out this required reserve amount and must keep it with the Fed. The remaining amount, $8,100, can be lent out by the bank. As a result of the $9,000 deposit, both the assets and liabilities of First Jayhawk Bank increase by $9,000. Therefore, all three statements – A, B, and C – are correct.

Suppose Banks Desire to Hold No Excess Reserves and That