Suppose that the First National Bank acquires $500,000 in new deposits and the required reserve ratio is 12 percent.Which of the following is true?

Question

Quizplus · Accepted Answer

The First National Bank can lend out the excess reserves after holding the required reserve of 12% of $500,000 which is $60,000. Therefore, the bank can lend out $440,000 ($500,000 - $60,000) which can further increase the money supply. The entire banking system can potentially increase the money supply by a multiple of the initial deposit, but we cannot determine the exact amount as it depends on the reserve ratio and the lending behavior of each bank.

Suppose That the First National Bank Acquires $500,000 in New