Question

A commercial bank has required reserves of $60 million and the reserve ratio is 20 percent. If the bank is fully loaned up, what is the maximum total checkable-deposits the bank can legally support?

Answer 1

$300 million

Step-by-step explanation:

Data provided in the question:

Required reserves by commercial bank = $60 million

Reserve ratio of the commercial bank = 20% = 0.20

Now,

Reserve ratio is given as:

Reserve ratio = [ Reserves ] ÷ [ Checkable deposits ]

or

0.20 = $60 million ÷ [ Checkable deposits ]

or

Checkable deposits = $60 million ÷ 0.20

or

Checkable deposits = $300 million