Suppose That Bank Apollo Has a Target Reserve Ratio of 5

question 123

Multiple Choice

Suppose that Bank Apollo has a target reserve ratio of 5 percent,$10,000 in demand deposits,and $1,000 in reserves.Assume that the bank makes a loan equal to its excess reserves and the borrower spends this amount at a business that does not use Bank Apollo.What is the net effect on Bank Apollo?

• A)It will be neither under- or over-reserved.
• B)It will be over-reserved by $500.
• C)It will be under-reserved by $500.
• D)It will be under-reserved by $25.
• E)Its reserve status is unaffected.

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Definitions:

Profit-Maximizing

The method through which a company identifies the pricing and production quantity that maximizes its profits.

Interest Rate

The percentage charged on the total amount of borrowed money or paid on deposited funds over a specific period.

Investment Project

A project involving the commitment of resources with the expectation of generating future returns or benefits.

Market Price

This term refers to the actual selling price of goods or services in the marketplace at any given time.