Scenario 11-1 A Bank's Assets Consist of $500 000 in Total Reserves

question 159

Multiple Choice

Scenario 11-1
A bank's assets consist of $500 000 in total reserves, $1 600 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $2 000 000 in demand deposits and $1 300 000 in capital.
-Refer to Scenario 11-1.If the desired reserve ratio is 25 percent,what is the level of the bank's excess reserves and how much money could the excess reserves be used to create in the banking system as a result?

• A)Excess reserves are $250 000 and could be used to create $1 000 000 in the banking system.
• B)Excess reserves are $500 000 and could be used to create $2 000 000 in the banking system.
• C)Excess reserves are $500 000 and could be used to create $500 000 in the banking system.
• D)Excess reserves are zero and could not be used to create any money in the banking system.

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