The table below shows the data (in millions)for Wells Fargo Bank in September 2007 and September 2008. Suppose that the required reserve ratio is 3 percent.

The data show that

Question

The table below shows the data (in millions)for Wells Fargo Bank in September 2007 and September 2008. Suppose that the required reserve ratio is 3 percent.

The data show that

Quizplus · Accepted Answer

In 2007, Wells Fargo had total reserves of $39,846 million and required reserves of $13,561 million (calculated as 3% of deposits). This means that Wells Fargo had excess reserves of $26,285 million, which could potentially be used to make loans and create money. In 2008, Wells Fargo had total reserves of $47,883 million and required reserves of $16,255 million. This represents an increase in total reserves, but not necessarily an increase in required reserves (as there is no information given about changes in the required reserve ratio). Therefore, the increase in reserves does not necessarily mean that Wells Fargo was only able to make more loans because it gained more deposits (as stated in choice D). The fact that Wells Fargo had excess reserves in 2007 suggests that it was able to create money by making loans.

The Table Below Shows the Data (In Millions)for Wells Fargo