If a Bank Has a Required Reserve Ratio of 25

question 59

Multiple Choice

If a bank has a required reserve ratio of 25% and there is $10,000 in deposits,what is the maximum amount of loans that can be made by this bank?

• A) $40,000
• B) $10,000
• C) $0
• D) $2,500
• E) $7,500

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Definitions:

Consumption Component

The part of total economic output that is used by individuals and households for personal needs and wants.

Additions to Inventory

Increases in the quantity of goods held by a company during a particular period, often for future sale or production use.

Reductions in Inventory

Decreases in the quantity of goods that a company holds, which can indicate stronger sales or a preparation for lower demand.

Investment Component

A part of economic theory that represents funds allocated towards investment products or goods with the expectation of future returns or income.