If the Required Reserve Ratio Is 10 Percent and a Bank

question 141

Multiple Choice

If the required reserve ratio is 10 percent and a bank receives a new deposit for $100,000,then the:

• A)bank must keep $5,000 in excess reserves.
• B)bank's required reserves increase by $45,000.
• C)bank's liabilities increase by $100,000.
• D)bank can increase its loans by up to $50,000.
• E)bank can increase its loans by up to $400,000.

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Definitions:

Another Company

This term refers to an entity different from the one currently being discussed or involved.

Volatile Interest Rates

Interest rates that fluctuate frequently and unpredictably, often affecting borrowing and saving costs.

Equity

Represents the value of an ownership interest in a company, often expressed as share capital or stock, reflecting the residual interest in the assets of the entity after deducting liabilities.