A commercial bank has excess reserves of $5,000 and a required reserve ratio of 20 percent.It makes a loan of $6,000 to a borrower.The borrower writes a check for $6,000 that is deposited in another commercial bank.After the check clears, the first bank will be short of reserves in the amount of
A)$1,000.
B)$1,200.
C)$5,000.
D)$6,000.

Question

Quizplus · Accepted Answer

The first bank had $5,000 in excess reserves and made a $6,000 loan, which means it used $1,000 more than its excess reserves. With a 20% reserve requirement, it needs to hold $1,200 (20% of $6,000) in reserves for the loan, making it short by $1,000.

A Commercial Bank Has Excess Reserves of $5,000 and a Required