Suppose Bank a Holds $200 of Reserves, Has Deposits of $1000

question 161

Multiple Choice

Suppose Bank A holds $200 of reserves, has deposits of $1000, and the desired reserve ratio is 15 percent. How many loans can Bank A create at Bank A?

• A) zero, because Bank A has no excess reserves
• B) $850
• C) $50
• D) $200

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Definitions:

Interest Rate

Rate at which one can borrow or lend money.

Decline

A decrease in quantity, quality, or strength over a period, often observed in economic indicators, stock prices, or physical capacities.

Interest Rate

The proportion of a loan that is charged as interest to the borrower, typically expressed as an annual percentage of the loan outstanding.

Present Value

The current worth of a future sum of money or stream of cash flows, given a specified rate of return.