Following a new deposit of $500, the loans of a commercial bank increase by $450. In this situation, the reserve ratio is most likely

Question

Quizplus · Accepted Answer

The reserve ratio is the percentage of deposits that a bank is required to hold as reserves. Using the deposit multiplier formula, we can determine the reserve ratio as:
Deposit multiplier = 1 / Reserve ratio
$500 deposit leads to $450 increase in loans, so the deposit multiplier is 1 + ($450/$500) = 1.9
Therefore, reserve ratio = 1/1.9 = 0.526 or 52.6%
The closest answer choice to this is B, which is 10%. Therefore, B is the best choice.

Following a New Deposit of $500, the Loans of a Commercial