Suppose a transaction changes a bank's balance sheet as indicated in the following T-account,and the required reserve ratio is 10 percent. As a result of the transaction,the bank can make a maximum loan of

Question

Suppose a transaction changes a bank's balance sheet as indicated in the following T-account,and the required reserve ratio is 10 percent.  As a result of the transaction,the bank can make a maximum loan of

Quizplus · Accepted Answer

The maximum loan that the bank can make is the excess reserves, which is calculated as total reserves minus required reserves. 
Total reserves = $2,000 
Required reserves = 10% of $20,000 (total deposits) = $2,000 
Excess reserves = Total reserves - Required reserves = $2,000 - $2,000 = $0 
Therefore, the bank cannot make any loans initially. However, if the customer deposits more funds, the bank can make loans up to the amount of the excess reserves. In this case, if the customer deposits an additional $2,000, the bank would have excess reserves of $2,000 and could potentially make a loan of $2,000.

Suppose a Transaction Changes a Bank's Balance Sheet as Indicated