If a bank has $1 million in demand deposits, $400,000 in reserves, and faces a 30 percent reserve requirement, the amount of money that a bank could initially create by loaning out their excess reserves is:

Question

Quizplus · Accepted Answer

The bank must keep 30% of $1 million, or $300,000, in reserves. It already has $400,000, so the excess reserves that can be loaned out are $400,000 - $300,000 = $100,000.

If a Bank Has $1 Million in Demand Deposits, $400,000