Question

Suppose a bank has 100,000 in deposits, a required reserve ratio of 10 percent, and total reserves of10,000. Then the bank can make new loans in the amount of:

1) $90,000
2) $9,000
3) $10,000
4) $1,000

Answer 1

The bank cannot make new loans in this case as it doesn't have excess reserves.

Step-by-step explanation:

The required reserve ratio is the portion of deposits that banks are required to keep as reserves. In this case, the bank has $100,000 in deposits and a required reserve ratio of 10%. This means that the bank is required to keep $10,000 (10% of $100,000) as reserves. Since the bank already has total reserves of $10,000, it doesn't have any excess reserves to make new loans.