Answer the question based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars: Refer to the above data. If the commercial banking system actually loans out the maximum amount it is able to lend, excess reserves will fall:
A) By $28 billion
B) By $22 billion
C) By $20 billion
D) To zero

Question

Answer the question based on the following consolidated balance sheet for the commercial banking system. Assume the required reserve ratio is 12 percent. All figures are in billions of dollars:  Refer to the above data. If the commercial banking system actually loans out the maximum amount it is able to lend, excess reserves will fall:
A) By $28 billion 
B) By $22 billion 
C) By $20 billion 
D) To zero

Quizplus · Accepted Answer

According to the required reserve ratio of 12 percent, the commercial banking system is required to hold reserves of $240 billion (12% of $2,000 billion in deposits). As the current excess reserves are $40 billion ($280 billion - $240 billion), if the commercial banking system actually loans out the maximum amount it is able to lend, excess reserves will fall to zero, which means a decrease of $40 billion. Therefore, the correct answer is D) To zero.

Answer the Question Based on the Following Consolidated Balance Sheet