If a bank desires to hold no excess reserves, the reserve requirement is 5 percent, and it receives a new deposit of $1,000
A)its required reserves increase by $50.
B)its total reserves initially increase by $1,000.
C)it will be able to make a new loan of up to $950.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

A) its required reserves increase by $50 because the reserve requirement is 5%, so it needs to hold 5% of $1,000 ($50) in reserves.
B) its total reserves initially increase by $1,000 because it has received a new deposit of $1,000.
C) it will be able to make a new loan of up to $950 because it needs to hold $50 in required reserves (5% of $1,000), leaving $950 available for loans.

If a Bank Desires to Hold No Excess Reserves, the Reserve