If a bank has $1 million in demand deposits, $350,000 in reserves, and faces a 30 percent reserve requirement, the amount of money that a bank could directly create by loaning out their excess reserves is:

Question

Quizplus · Accepted Answer

The bank has $1 million in demand deposits and a 30% reserve requirement, meaning it must keep $300,000 in reserves ($1,000,000 * 0.30). With $350,000 in actual reserves, the excess reserves are $50,000 ($350,000 - $300,000), which is the amount the bank can loan out.

If a Bank Has $1 Million in Demand Deposits, $350,000