Suppose a Bank Has $100 Million in Checking Account Deposits

question 106

Multiple Choice

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent.If the Federal Reserve reduces the required reserve ratio to 8 percent,then the bank can make a maximum loan of

• A)$0.
• B)$2 million.
• C)$8 million.
• D)$10 million.

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Definitions:

Dissolution

The process of officially ending the existence of a legal entity such as a corporation or partnership.

Authority of a Partner

The power granted to a partner in a partnership to act on behalf of the partnership and legally bind the business in contracts and agreements.

Not Reasonably Practicable

A legal standard indicating something cannot be done in a feasible manner under the circumstances.

Operation of Law

A legal term that indicates a right or liability is created or extinguished automatically due to existing laws, rather than by the act of a party.