Question

Imagine that Big Bank has a 5% reserve requirement and $7,000 in deposits. If this bank has loaned out all it can given the reserve requirement, which of the following statements is correct?

A. Big Bank has $35 in reserves and $4,500 in loans
B. Big Bank has $250 in reserves and $4,750 in loans.
C. Big Bank has $350 in reserves and $6,650 in loans.
D. None of the above statements is correct

Answer 1

C. Big Bank has $350 in reserves and $6,650 in loans.

Step-by-step explanation:

The computation is shown below:

Since it is given in the question that 5% is the reserve requirement and the remaining amount would be loaned out and the same is applied to the calculation part

For reserves

= Deposit amount × reserve requirement percentage

= $7,000 × 5%

= $350

And, the remaining amount would be reflected in the loan account

= Deposit amount - reserves

= $7,000 - $350

= $6,650