Assume that a bank initially has no excess reserves.If it receives $5,000 in cash from a depositor and the bank finds that it can safely lend out $4,500, the reserve requirement must be
A)zero.
B)10 percent.
C)20 percent.
D)25 percent.

Question

Quizplus · Accepted Answer

The reserve requirement is the percentage of deposits that a bank must hold as reserves. If the bank can lend out $4,500 from a $5,000 deposit, it must hold $500 as reserves. $500 is 10% of $5,000, indicating a 10 percent reserve requirement.

Assume That a Bank Initially Has No Excess Reserves