Initially a Bank Has a Required Reserve Ratio of 20

question 13

Multiple Choice

Initially a bank has a required reserve ratio of 20 percent and no excess reserves.If $5,000 is deposited into the bank,then initially,ceteris paribus,

• A)This bank can increase its loans by $5,000.
• B)This bank can increase its loans by $4,000.
• C)Total reserves will increase by $4,000.
• D)Required reserves will increase by $5,000.

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Definitions:

Face Value

The nominal or dollar value printed on a financial instrument, such as a bond.

Promissory Note

A financial instrument comprising a written promise by one party to pay a certain amount of money to another party at a specified time or on demand.

Dishonored

A term typically used in banking and finance to refer to a payment instrument, such as a check or promissory note, that has been refused or rejected by the payer's bank due to insufficient funds or other reasons.

Interest-Bearing Note

A debt instrument in which the issuer pays interest to the holder, usually at a fixed rate, until the note reaches maturity.