Suppose a Bank Has $100 Million in Checking Account Deposits

question 106

Multiple Choice

Suppose a bank has $100 million in checking account deposits with no excess reserves and the required reserve ratio is 10 percent.If the Federal Reserve reduces the required reserve ratio to 8 percent,then the bank can make a maximum loan of

• A)$0.
• B)$2 million.
• C)$8 million.
• D)$10 million.

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Definitions:

Accurate

Free from errors or mistakes; precise and correct in details.

Cent

The smallest denomination of many currencies, representing 1/100th of the currency's main unit.

Percent

A ratio or fraction calculated out of 100, used to indicate portions of a whole.

Percent

A rate, number, or amount in each hundred; a fraction of a whole expressed in hundredths.