Suppose all banks are subject to a uniform reserve requirement of 20 percent and that the Gamblers Last Chance Bank of Las Vegas has zero excess reserves. If a new customer deposits $10,000, the bank can now extend new loans up to a maximum of:

Question

Quizplus · Accepted Answer

The maximum loans that can be extended will be equal to the excess reserves created due to the new deposit. Since the bank has zero excess reserves, the maximum amount that can be loaned is $10,000 x 0.2 = $2,000. Therefore, the correct answer is B.

Suppose All Banks Are Subject to a Uniform Reserve Requirement