The table below shows the balance sheet of Countybank.If the required reserve ratio is 10 percent,this bank alone can now increase its lending by _____.
Table 14.2

COUNTYBANK

Question

The table below shows the balance sheet of Countybank.If the required reserve ratio is 10 percent,this bank alone can now increase its lending by _____.​ ​
Table 14.2
​
COUNTYBANK

Quizplus · Accepted Answer

To calculate the amount by which the bank can increase its lending, we need to first find the total amount of excess reserves the bank currently holds:
Excess Reserves = Total Reserves - Required Reserves
= $1,000 - ($10,000 x 0.10)      [since the required reserve ratio is given as 10%]
= $1,000 - $1,000
= $0

Since the bank has no excess reserves, it cannot increase lending by any amount that exceeds the required reserve ratio. Therefore, the maximum amount of lending that can be increased is equal to the amount of required reserves released by the deposit: 10% of $9,000 (since $1,000 is reserved):
= 0.10 x $9,000
= $900

Thus, the correct answer is E, $900. The other options are incorrect as they either exceed the maximum amount of lending the bank can increase or are less than the maximum amount.

The Table Below Shows the Balance Sheet of Countybank