Dollar Bank is currently loaned up. If the required reserve ratio is lowered,
A) Dollar Bank's net worth will increase.
B) Dollar Bank will have excess reserves that it can lend out.
C) Dollar Bank will still be loaned up because it did not receive any additional deposits.
D) Dollar Bank's actual reserves will increase, but it will still be loaned up.

Question

Quizplus · Accepted Answer

If the required reserve ratio is lowered, Dollar Bank will have to keep less money in reserve and will have excess reserves that it can lend out. This means that Dollar Bank will no longer be loaned up and will have the ability to lend out more money, leading to potential increases in profits. However, it is important to note that lowering the reserve ratio can also lead to potential risks of inflation and instability in the banking system.

Dollar Bank Is Currently Loaned Up