Question

Suppose Janice takes $4000 in coins to the bank to deposit into her checking account. Assume the reserve requirement at all banks is 20%.

When Eva spends her loan, and the person who receives that money deposits into their bank, $________ must be kept on reserve and $______ can be loaned out.

a) $800; $3200
b) $3200; $800
c) $1000; $3000
d) $2000; $2400

Answer 1

When Janice deposits $4000 with a 20% reserve requirement, the bank must reserve $800 and can loan out $3200. The correct answer is (a) $800; $3200.

Step-by-step explanation:

When Janice deposits $4000 in coins into her checking account and given that the reserve requirement at all banks is 20%, the banks must keep a certain percentage of that amount as a reserve and can loan out the rest. According to the reserve requirement, the bank must keep 20% of $4000, which is $800, on reserve.

The remaining 80% of $4000, which is $3200, can be loaned out by the bank.

In this scenario, $800 must be kept on reserve and $3200 can be loaned out. Therefore, the correct answer is (a) $800; $3200.