If a Bank Has $1 Million in Demand Deposits, $350,000

question 44

Multiple Choice

If a bank has $1 million in demand deposits, $350,000 in reserves, and faces a 30 percent reserve requirement, the amount of money that a bank could directly create by loaning out their excess reserves is:

• A)$50,000.
• B)$300,000.
• C)$350,000.
• D)$700,000.

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Definitions:

Intangible Asset

An asset without physical substance that holds value for a business, such as patents, trademarks, and copyrights.

Amortization

The process of spreading the cost of an intangible asset over its useful life for accounting and tax purposes.

Indefinite Life

An accounting term for assets that are not subject to depreciation due to their perpetual existence or usefulness.

Outstanding Common Stock

Shares that are issued by a company and held by investors, excluding any shares held as treasury stock by the company itself.