Final answer:
The possible change in loans as a result of Katty's $10,000 deposit at a bank with a 20% reserve ratio is $8,000, as the bank is required to hold $2,000 in reserves and can loan out the remaining $8,000.
Step-by-step explanation:
Given that First Federal Bank has a required reserve ratio of 20%, Katty's deposit of $10,000 would require the bank to hold $2,000 (20% of $10,000) in reserves. The remaining $8,000 could be potentially loaned out to other bank customers.
This is a consequence of the fractional reserve banking system, where banks keep a portion of deposits as reserves and use the remainder for issuing loans, thus potentially expanding the money supply.
Following the changes due to the pandemic-induced recession, reserve requirements were reduced to 0%, meaning banks are no longer mandated to hold a specific percentage of each deposit in reserve. However, the requirement at the time this question refers to was still in effect, making $8,000 the maximum amount that could be loaned out from Katty's deposit under a 20% reserve requirement.
To find the possible change in loans as a result of Katty's deposit, we need to calculate the excess reserves that the bank can use for loans. The required reserve ratio is 20%, which means the bank must hold 20% of the deposit as reserves and can loan out the remaining 80%.
So, the possible change in loans would be 80% of $10,000, which is C) $8,000.