If a bank had demand deposits of $80 million and it faced a 25 percent required reserve ratio, it would be able to have a maximum amount of how many dollars worth of loans?

Question

Quizplus · Accepted Answer

The maximum amount of loans a bank could have would be its excess reserves. To find excess reserves, we need to start by calculating the required reserves, which are 25% of demand deposits ($80 million x 0.25 = $20 million). Therefore, the bank must hold $20 million in reserves and can lend out the rest ($80 million - $20 million = $60 million). So the maximum amount of loans the bank could have is $60 million.

If a Bank Had Demand Deposits of $80 Million and It