A-1 bank initially has no excess reserves.If the desired reserve ratio is 10 percent and a new deposit of $10,000 is made in A-1,then A-1
A)is required to hold the deposit in its reserves.
B)can immediately loan a multiple of the $10,000.
C)can immediately loan $9,000.
D)can immediately loan $100,000.
E)can immediately loan $10,000.

Question

Quizplus · Accepted Answer

If the desired reserve ratio is 10 percent, A-1 bank will be required to hold 10% of the deposit in reserve, which is $1,000. This leaves $9,000 that can be loaned out. Therefore, the correct answer is (C) A-1 can immediately loan $9,000.

A-1 Bank Initially Has No Excess Reserves