The Banking System Has Deposits of $100 Million and No

question 62

Multiple Choice

The banking system has deposits of $100 million and no excess liquidity. Suppose all the banks decide to reduce their liquidity ratio from 25% to 20%. If there are no leakages from the banking system, the banking system:

• A) could make additional loans up to $25 million
• B) could make additional loans up to $20 million
• C) could not make any additional loans because it has not received any new deposits
• D) could make additional loans up to $5 million