If the reserve ratio is 10 percent and a bank receives a new deposit of $800,which of the following will this bank most likely do?
A) It will increase its required reserves by $8000.
B) It will make new loans of $8000.
C) It will be able to make new loans of $800.
D) It will initially see its total reserves increase by $800.

Question

Quizplus · Accepted Answer

When a bank receives a new deposit, it initially sees its total reserves increase by the amount of the deposit. In this case, the bank's total reserves will increase by $800. The bank must keep 10 percent of the deposit ($80) as required reserves, but it can use the remaining $720 to make new loans. Therefore, choice C is partially correct, but it is not the best choice because the bank can make new loans of $720, not $800. Choice A is incorrect because the required reserve amount increases by $80, not $8000. Choice B is incorrect because the bank can only make new loans of $720, not $8000.

If the Reserve Ratio Is 10 Percent and a Bank