If the reserve requirement is 5 percent, a bank desires to hold no excess reserves, and it receives a new deposit of $400, it
A)must increase required reserves by $20.
B)will initially see reserves increase by $400.
C)will be able to use this deposit to make new loans amounting to $380.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

The reserve requirement of 5% means the bank must hold $20 of the $400 deposit as reserves. The bank's reserves initially increase by $400, and after holding the required $20, it can loan out the remaining $380.

If the Reserve Requirement Is 5 Percent, a Bank Desires