A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement. a. It has $80 in reserves and $9,920 in loans. b. It has $800 in reserves and $9,200 in loans. c. It has $1,250 in reserves and $8,750 in loans. d. It has $8,000 in reserves and $2,000 in loans.

The amount of money that a bank must have in reserve in order to pay its obligations in the event of unforeseen withdrawals is known as the reserve requirement. The central bank uses reserve requirements as a tool to change the amount of money in the economy and affect interest rates. Based on a portion of the cash that customers have on hand, banks lend them money. In exchange for this power, the government imposes one obligation on them: maintain a minimum balance of deposits to cover any withdrawals. The reserve requirement is the amount that banks must have in reserve and are not allowed to lend above. Given that; Reserve requirement=8% Deposit= $10,000 Reserve Ratio = Reserve maintained with Central Bank ×Deposits =8%×$10,000 =$800 Loan=Deposits-required reserves =$10000-800 =$9200 Thus the bank has $800 in reserves and $9,200 in loans. Option (b) is correct.

Answered: A bank has an 8 percent reserve…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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A bank has an 8 percent reserve requirement, $10,000 in deposits, and has loaned out all it can, given the reserve requirement.

		a. It has $80 in reserves and $9,920 in loans.
		b. It has $800 in reserves and $9,200 in loans.
		c. It has $1,250 in reserves and $8,750 in loans.
		d. It has $8,000 in reserves and $2,000 in loans.

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