If a Bank That Faces a 25 Percent Reserve Ratio

question 158

Multiple Choice

If a bank that faces a 25 percent reserve ratio received a deposit of $30,000 and makes a loan to a customer for $10,000,what is the consequence if the bank then deposits the rest of the funds at the Federal Reserve?

• A) Excess reserves increase by $30,000.
• B) Excess reserves increase by $20,000 and required reserves increase by $10,000.
• C) Excess reserves increase by $12,500 and required reserves increase by $7,500.
• D) Required reserves increase by $17,500.
• E) Reserves are not affected.

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