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 Janice deposits the $4000, the bank can lend Mary, another customer $__________.

a) $4000
b) $3200
c) $1000
d) $800

Answer 1

When Janice deposits $4000 at a bank with a 20% reserve requirement, the bank can lend out $3200 to another customer, because 20% or $800 of the deposit must be held as reserves.

Step-by-step explanation:

When Janice deposits $4000 into her checking account with a reserve requirement of 20%, the bank is required to hold 20% of that deposit in reserve, which equals $800. The rest, which is 80% of the deposit, can be lent out to other customers. In this case, the bank can lend out $3200 to Mary.

The reserve requirement is a regulation that determines how much money a bank must keep on hand and cannot loan out. If Janice deposits $4000 and the reserve requirement is 20%, then $800 must be kept in the bank as reserves, allowing the bank to loan out the remaining $3200 to customers like Mary.