A commercial bank has $1,000,000 of outstanding demand deposits and actual reserves of $300,000. If the required reserve ratio is 20 percent, what is the maximum amount of new loans the bank can extend?

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The maximum amount of new loans the bank can extend is determined by the excess reserves, which are the actual reserves minus the required reserves. The required reserves are 20% of $1,000,000, which is $200,000. The bank has actual reserves of $300,000, so the excess reserves are $300,000 - $200,000 = $100,000. This is the maximum amount of new loans the bank can extend.

A Commercial Bank Has $1,000,000 of Outstanding Demand Deposits and Actual