If the reserve requirement is 10 percent,a bank desires to hold no excess reserves,and it receives a new deposit of $500,it
A)must increase required reserves by $50.
B)will initially see reserves increase by $500.
C)will be able to use this deposit to make new loans amounting to $450.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

If the reserve requirement is 10 percent, the bank must hold $50 of the new deposit as required reserves (10% of $500). This means that initially, the bank's reserves will increase by $500. However, since the bank desires to hold no excess reserves, they will seek to loan out the remaining funds. The maximum amount of new loans the bank can make is equal to the deposit ($500) minus the required reserves ($50), or $450. Therefore, all three statements are correct.

If the Reserve Requirement Is 10 Percent,a Bank Desires to Hold