Question

If a bank has total reserves of $200,000 and $1 million in deposits, how much money can it lend if the required reserve ratio is 6 percent

a) $940,000
b) $960,000
c) $1,040,000
d) $1,060,000

Answer 1

Based on the given information, the bank can lend c) $140,000.

The bank's required reserve ratio is 6 percent, which means it is required to hold 6 percent of its deposits as reserves.

In this case, the bank has $1 million in deposits. To calculate the required reserves, we multiply the deposits by the reserve ratio:

$1 million * 0.06 = $60,000

The bank currently has $200,000 in reserves, which is $60,000 more than the required reserves. This extra amount is known as excess reserves.

The bank can lend out the excess reserves, which is $200,000 - $60,000 = $140,000.

Therefore, the bank can lend $140,000.

Since none of the answer options provided matches this amount, it seems that there might be an error in the options given.

To summarize, based on the given information, the bank can lend $140,000.

Answer 2

The bank can lend $940,000.

Step-by-step explanation:

To determine how much money the bank can lend, we need to calculate the required reserves first. The required reserve ratio is 6 percent of the deposits, which is $1 million x 0.06 = $60,000. The bank already has total reserves of $200,000, so it will need to hold an additional $60,000 as required reserves. Therefore, the amount available for lending is $1 million - $60,000 = $940,000.