Question

If the reserve ratio is 20% and a bank accepts $10,000 in demand deposits from the public, then it would have to keep ______ in reserves.

A. $8,000
B. $20
C. $200
D. $2,000

Answer 1

With a reserve ratio of 20%, the bank must keep $2,000 in reserves from the $10,000 demand deposit it received.

Step-by-step explanation:

The reserve ratio is the fraction of deposits that a bank is required by the Federal Reserve to hold as reserves, rather than loaning out or investing. If a bank receives $10,000 in demand deposits and the reserve ratio is 20%, then the bank must hold 20% of $10,000, which is $2,000, in reserves. Therefore, the correct answer is D. $2,000.