If a bank gets a $100,000 new deposit, chooses to lend out $85,000, and increases its excess reserves by $5,000 at the same time, then the reserve requirement is:

Question

Quizplus · Accepted Answer

The reserve requirement is 10% because the bank must hold $10,000 (10% of $100,000) in reserves. It lends out $85,000 and increases excess reserves by $5,000, which adds up to the $10,000 required reserve, indicating a 10% reserve requirement.

If a Bank Gets a $100,000 New Deposit, Chooses to Lend