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

With a reserve requirement of 20%, the bank is required to hold onto $2,000 of the deposited $10,000 as reserves (20% of $10,000 = $2,000). This means the bank can use the remaining $8,000 to extend new loans. Therefore, the maximum amount of new loans the bank can give is $8,000.

Suppose All Banks Are Subject to a Uniform Reserve Requirement