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Use the Following to Answer Questions: for This Table, Assume

question 29

Multiple Choice

Use the following to answer questions: For this table, assume that all banks observe the same required reserve ratio requirement. Also assume that the banks are listed in sequential order (thus the loans from the First National Bank become the deposits for the Second National Bank, and the loans from the Second National Bank become the deposits for the Third National Bank, and so on.) Also, the bank's balance sheets must always be balanced.
Table: Multiple Deposit Expansion First National Bank
$\begin{array}{ll}\hline \text { ASSETS } & \text { LIABILITIES } \\\hline \text { Required reserves }& \text { Deposits }\quad \$ 400,000 \\\text { Loans }\quad\$ 368,000 & \\\text { TOTAL } & \text { TOTAL }\end{array}$

$\begin{array}{ll}\text { Second National Bank } & \\\hline \text { ASSETS } & \text { LIABILITIES } \\\hline \text { Required reserves } & \text { Deposits } \\\text { Loans } & \\\text { TOTAL } & \text { TOTAL } \\\hline\end{array}$

$\text { Third National Bank }$
$\begin{array}{ll}\hline \text { ASSETS } & \text { LIABILITIES } \\\hline \text { Required reserves } & \text { Deposits } \\\text { Loans } & \\\text { TOTAL } & \text { TOTAL }\end{array}$
-(Table: Multiple Deposit Expansion) Refer to the table. For the multiple deposit expansion process described in this table, what is the maximum amount of loans that the Second National Bank can make if it holds only the required reserves?

Definitions:

Accounts Payable

Liabilities owed by a company to creditors for goods and services received but not yet paid for.

Capital Stock

The total number of shares that a corporation is authorized to issue as stated in its corporate charter.

Assets

Economic resources controlled by a business from which future economic benefits are expected to flow to the business.

Liabilities

These are obligations a business owes to external parties, including loans, accounts payable, mortgages, and other debts.