If a Bank That Faces a 10% Reserve Ratio Received

question 125

Multiple Choice

If a bank that faces a 10% reserve ratio received a deposit of $50,000 and makes a loan to a customer for $5,000,what is the consequence if the bank then deposits the rest of the funds at the Federal Reserve?

• A) Excess reserves increase by $50,000.
• B) Excess reserves increase by $45,000 and required reserves increase by $5,000.
• C) Excess reserves increase by $5,000 and required reserves increase by $45,000.
• D) Excess reserves increase by $40,000 and required reserves increase by $5,000.
• E) Reserves are not affected.

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