Question

Liabilities: Demand Deposits ; Assets: Actual reserves, loans

Bank A:
Actual Reserves: $1,000 ; Loans: $4,000 ; Demand deposits: $5,000
Bank B:
Actual reserves: $100 ; Loans: $500 ; Demand deposits: $600
Bank C:
Actual reserves: $10 ; Loans: $90 ; Demand deposits: $100
Based on the balance sheets above for three different banks, which of the following is true, if the reserve requirement is 10 percent?
A) Bank A has no excess reserves
B) Bank B has no excess reserves
C) Bank B can increase its loans by $500
D) Bank B can increase its loans by $40
E) Bank C has excess reserves

Answer 1

Bank A has no excess reserves, Bank B can increase its loans by $40, and Bank C has excess reserves. option d is answer

Step-by-step explanation:

Bank A has actual reserves of $1,000, which is 10% of its demand deposits of $5,000. Therefore, Bank A has met its reserve requirement and does not have any excess reserves.

Bank B has actual reserves of $100, but its demand deposits are only $600. The reserve requirement for Bank B would be $60 (10% of $600), so Bank B does have excess reserves of $40 ($100 - $60).

Bank C has actual reserves of $10, which is 10% of its demand deposits of $100. Therefore, Bank C has met its reserve requirement and does not have any excess reserves.

Based on this information, the correct answer is Bank B can increase its loans by $40. option d is answer