Assume We Have a Simplified Banking System in Balance-Sheet Equilibrium

question 24

Multiple Choice

Assume we have a simplified banking system in balance-sheet equilibrium. Also assume that all banks are subject to a uniform 10 percent reserve requirement and demand deposits are the only form of money. A commercial bank receiving a new demand deposit of $100 would be able to extend new loans in the amount of:

• A) $10.
• B) $90.
• C) $100.
• D) $1,000.

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Definitions:

Assets

Resources owned by a business or individual that have economic value and can be used to meet debts or commitments.

Liabilities

Financial obligations or debts a company owes to external parties.

Certificate Of Deposit

A Certificate of Deposit is a savings certificate with a fixed maturity date and specified fixed interest rate that is issued by commercial banks.

Microsoft Stock

Equity shares representing ownership in Microsoft Corporation, a leading technology company, traded on stock exchanges.