If a bank receives a new transaction deposit of $10,000 and the reserve ratio is 5 percent, then the bank could expand its loans by as much as

Question

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The bank can only loan out 95% of the deposit because of the 5% reserve requirement. This means the bank can loan out $9,500 ($10,000 x 95%). Option A is too low, option C is not feasible because banks are required to maintain reserves, and option D is not relevant to the given information.

If a Bank Receives a New Transaction Deposit of $10,000