Suppose banks desire to hold no excess reserves and that the Fed has set a reserve requirement of 6 percent.If you deposit $8,000 into First Raven Bank,
A)First Raven's required reserves increase by $480.
B)First Raven will be able to lend out $7,520.
C)First Raven's assets and liabilities both will increase by $8,000.
D)All of the above are correct.

Question

Quizplus · Accepted Answer

When you deposit $8,000 into First Raven Bank, their required reserves increase by 6% of the deposit, which is $480. This means that First Raven will be able to lend out the remaining amount, which is $7,520. Additionally, since the deposit counts as an increase in First Raven's liabilities, their assets must also increase by an equal amount, which is $8,000. Therefore, all of the above options (A, B, and C) are correct.

Suppose Banks Desire to Hold No Excess Reserves and That