Suppose a transaction changes a bank's balance sheet as indicated in the following T-account,and the required reserve ratio is 10 percent. As a result of the transaction,the bank can make a maximum loan of

Question

Suppose a transaction changes a bank's balance sheet as indicated in the following T-account,and the required reserve ratio is 10 percent.  As a result of the transaction,the bank can make a maximum loan of

Quizplus · Accepted Answer

The maximum loan that the bank can make is equal to its excess reserves. Excess reserves are calculated by subtracting required reserves from total reserves.

In this case, the total reserves are $20,000 ($10,000 in deposits and $10,000 in securities), and the required reserves are 10% of the deposits, or $1,000.

Therefore, excess reserves are $19,000 - $1,000 = $18,000. The bank can make a loan up to its excess reserves, which is $18,000.

Choice C is the only option that falls within this range, as $1,800 is less than the excess reserves and the other options are either zero or greater than the excess reserves.

Suppose a Transaction Changes a Bank's Balance Sheet as Indicated