Suppose a Bank Has $10,000 in Deposits and $1,000 in Reserves

question 221

Multiple Choice

Suppose a bank has $10,000 in deposits and $1,000 in reserves. The required reserve ratio is 5%. Which of the following occurs if the required reserve ratio is increased to 10%?

• A) The bank's required reserves will decrease to $500.
• B) The bank's excess reserves will increase to $1,000.
• C) The bank's required reserves will increase to $1,000.
• D) The bank's ability to create loans increases by 5%.

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