Asked by Bohdan Simakov on Apr 26, 2024
Verified
A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement.
A) It has $80 in reserves and $9,920 in loans.
B) It has $800 in reserves and $9,200 in loans.
C) It has $1,250 in reserves and $8,750 in loans.
D) It has $8,000 in reserves and $2,000 in loans.
Reserve Requirement
A central bank regulation that sets the minimum fraction of customer deposits and notes that each commercial bank must hold as reserves rather than lend out.
Deposits
Funds placed into an account at a banking institution for safekeeping and possible interest accrual.
Reserves
Reserves refer to funds or other assets that banks or financial institutions hold to meet unexpected demands or regulatory requirements.
- Ascertain the influence of deposit operations on the money supply in a financial system.
- Comprehend the principle of reserve requirements and their significance in the context of banking and monetary policy.
Verified Answer
RP
Rachael PaleyApr 28, 2024
Final Answer :
B
Explanation :
With an 8 percent reserve requirement and $10,000 in deposits, the bank must keep $800 (8% of $10,000) in reserves. This means it can loan out the remaining $9,200.
Learning Objectives
- Ascertain the influence of deposit operations on the money supply in a financial system.
- Comprehend the principle of reserve requirements and their significance in the context of banking and monetary policy.