Scenario 11-2 A Bank's Assets Consist of $1 000 000 in Total

question 103

Multiple Choice

Scenario 11-2
A bank's assets consist of $1 000 000 in total reserves, $2 100 000 in loans, and a building worth $1 200 000. Its liabilities and capital consist of $3 000 000 in demand deposits and $1 300 000 in capital.
-Refer to Scenario 11-2.If the desired reserve ratio is 10 percent,what is the level of the bank's excess reserves and how much could it loan out as a result?

• A)Excess reserves are $700 000, and it could loan out $7 000 000.
• B)Excess reserves are $300 000, and it could loan out $3 000 000.
• C)Excess reserves are $700 000, and it could loan out $700 000.
• D)Excess reserves are $300 000, and it could loan out $300 000.

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Definitions:

Active Approach

A management strategy where decisions are made using discretionary methods to try to outperform the market or a specific benchmark.

Potential GDP

Potential GDP is the maximum possible output an economy can produce with full employment of its resources, without causing inflation.

Actual GDP

The total market value of all goods and services produced within a country in a specific period, measuring the economy's real output without adjustment for inflation.

Self-correcting Forces

Economic mechanisms that naturally work to restore equilibrium in markets without government intervention.