Initially a Bank Has a Required Reserve Ratio of 10

question 83

Multiple Choice

Initially a bank has a required reserve ratio of 10 percent and no excess reserves.If $1,000 is deposited into the bank,then,ceteris paribus,

• A)This bank can increase its loans by $900.
• B)This bank can increase its loans by $1,000.
• C)Total reserves will increase by $900.
• D)Required reserves will increase by $1,000.

---

Definitions:

Net Working Capital

The difference between a company's current assets and current liabilities, indicating the liquidity of the business.

Current Assets

Assets that are expected to be converted into cash, sold, or consumed within one year or the operating cycle, whichever is longer.

Revolving Credit Agreement

A banking agreement that allows the borrower to withdraw, repay, and redraw loans advanced to them up to a specified amount.

Line of Credit

An arrangement between a financial institution and a customer that establishes a maximum loan balance that the borrower can access.